What would be impact on employee taxes in the New Wage Codes?


Can someone share details of impact on Taxes of employees in the New Wage Codes?


Hi Namita,

The Code recognizes the basic pay, dearness allowance and the retaining allowance as the wages and excludes all the other payables, such as PF, Pension contributions, bonus, gratuity, retrenchment compensation, retirement benefits, ex-gratia, remuneration entitled through an award or settlements and all other commission, allowances and amenities that covers travel, conveyance, overtime, house accommodation, light, water, medical and other amenities, etc.

While computing the wages for the purpose of equal remuneration and for payment of wages, the allowances for conveyance, travel, house rent, overtime, remuneration payable under any award or settlement shall be included.

Other than the wages as mentioned above, the sum total of the remuneration paid in the form of allowances (except gratuity, retrenchment compensation, retirement benefits, ex-gratia) if exceeds one-half (50%) of the overall remuneration (wages + other allowances), the differential amount has to be added as a part of the wages.

Any remuneration paid in kind that does not exceed 15% of the total wages payable shall be treated as a part of the wages.

If the salary structure is well within the aforesaid definition, it will continue as it is.

If the salary structure is not as per this definition, a re-structuring of CTC will be required and while aligning as stated above, the statutory deductions will increase subject to the revision of the basic pay. So, the impact when compared with current scenario, will be something like, increase in PF, Gratuity contributions, the taxable salary will reduce and income tax deduction will be less, Gratuity payouts will be more, etc.

The burden increases to the employer, the in-hand salary reduces a bit to the employee but the retiral benefits increase.

Bhuvana Anand

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