Bhubaneswar: In a major restructuring of how salaries are calculated across the private sector, India’s revised national wage framework is poised to significantly reduce in-hand salaries for a large segment of employees—even as overall employer cost (CTC) remains the same.
Under the new rules, basic pay plus dearness and retaining allowances must constitute at least 50% of total wages. This closes the long-used flexibility that allowed companies to keep basic pay artificially low and inflate allowances, thereby lowering statutory deductions such as Provident Fund (PF) and increasing take-home pay.
What Changes Now
Since PF contributions are calculated as a percentage of basic salary, a mandated rise in basic pay automatically triggers higher PF deductions.
For many employees, especially those in middle and upper salary brackets, the result is lower monthly income and higher long-term retirement savings.
Who Will Be Hit Hardest
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Mid to high-income earners will see the steepest cuts.
A professional with an ₹18 lakh CTC could lose ₹3,000+ per month, translating into ₹40,000+ less liquid income annually, even though the money shifts into PF. -
Employees already compliant with the 50% norm will face minimal or zero change.
Illustrations of the Shift
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₹6 lakh CTC:
Earlier, basic pay could be kept at ₹1.8 lakh. Now it must rise to ₹3 lakh. PF deductions will increase accordingly, shrinking in-hand salary. -
₹12 lakh CTC:
Old basic: ₹4.2 lakh → PF: ₹4,200/month
New basic: ₹6 lakh → PF: ₹6,000/month
This monthly jump in PF cuts into immediate earnings.
A Forced Push Toward Long-Term Savings
The government’s intent is clear: strengthen long-term financial security for workers by boosting mandatory retirement savings. But the reform also raises concern for millions of salaried households that depend on monthly liquidity to manage living costs, EMIs, and essentials.
Bottom Line
While the reform enhances future financial protection, it tightens present-day cash flow.
The national wage overhaul marks one of the most consequential shifts in India’s salary architecture—reshaping not what employees earn, but how they receive it.
-OdishaAge
