India Basic Pay, PF & Gratuity Changes 2026: New Rules & Example Calculations
New Indian Salary, PF & Gratuity Changes in 2026 (Labour Code Impact & Calculations)
Introduction
From 2025–26, the Indian government has introduced major changes in labour laws affecting basic salary, Provident Fund (PF), and gratuity payouts. These reforms are designed to improve worker benefits and social security, but they also affect how monthly salary (take-home pay) and retirement benefits are calculated for employees across India.
What Changed Under New Labour Codes?
The Government of India has replaced 29 old labour laws with 4 new unified Labour Codes. These affect wages, social security, working conditions, provident fund, gratuity and other benefits.
Key Change: The 50% Wage Rule
Under the new rules:
Basic pay + Dearness Allowance (DA) + Retaining allowance must be at least 50% of total Cost To Company (CTC).
If this total is less than 50%, the remainder is added so that it reaches exactly 50%.
This rule ensures that your wage base for social security calculations (PF, pension, gratuity etc.) is fair and transparent.
How Salary Structure Changes
Before vs After (Example)
Suppose your monthly salary (CTC basis) = ₹60,000
Before New Rule
Basic Pay + DA: 35% = ₹21,000
Allowances: 65% = ₹39,000
PF & gratuity were calculated on ₹21,000
After New Rule
Basic Pay + DA must now be 50% = ₹30,000
Other allowances = ₹30,000
PF & gratuity now calculated on ₹30,000
This ensures better retirement benefits but may reduce take-home salary slightly.
How PF (Provident Fund) Is Affected
PF contribution is based on basic pay + DA.
Under the new rule:
Your basic pay must be higher, so PF contributions rise for both employee and employer.
This helps grow your retirement corpus faster.
Example PF Calculation
Old PF
Basic Pay: ₹21,000
Employee PF (12%) = 12% × 21,000 = ₹2,520 per month
Annual PF = ₹30,240
New PF
Basic Pay: ₹30,000
Employee PF (12%) = 12% × 30,000 = ₹3,600 per month
Annual PF = ₹43,200
👉 That’s ₹12,960 more PF per year, which boosts your retirement savings.
How Gratuity Payouts Change
Under the old system, you were eligible for gratuity only after 5 years of service.
New Change (in many cases):
Fixed-term or contract employees can become eligible for gratuity after just 1 year.
Regular employees generally continue to need 5 years.
Gratuity Formula
Gratuity is calculated as:
Example:
Last drawn wages (basic + DA): ₹30,000
Years of service: 10
Before the change, if wages were lower (due to low basic pay), the gratuity amount used to be smaller. Now with higher basic, the payout is larger.
Take-Home Salary Impact
Because PF contributions now increase:
Your take-home salary may reduce slightly.
But your retirement savings (PF + gratuity) grow faster.
Employers may adjust allowances to balance take-home and benefits.
Summary: What This Means For You
| Component | Before | After New Labour Codes |
|---|---|---|
| Minimum Basic Pay % of CTC | Optional | At least 50% |
| PF Base | Lower | Higher |
| PF Contribution | Lower | Higher |
| Gratuity Base | Lower | Higher |
| Gratuity Eligibility (fixed term) | After 5 years only | After 1 year |
| Take-Home Pay | Higher | Slightly Lower |
Conclusion
The new labour code rules in India are designed to strengthen workers’ long-term financial security by standardizing how wages are defined and calculated. While this may mean a slightly reduced take-home salary for some employees, the changes help ensure stronger PF balances and higher gratuity payouts over time — ultimately benefiting employees in their retirement years.
Comments
Post a Comment