New wage code: New salary structure may take some time to come. There is still time to prepare the draft rules. But, before that it is necessary to do your preparation. That’s why we have tried to explain the structure here.
New wage code: New rules of salary are going to be implemented. According to the new Wag Code of the government, the share of basic in the entire salary you will get every month will be 50%. The total CTC includes Basic Salary, Dearness Allowance and Retaining Allowance. The total salary received by adding these three should be 50 percent of the total salary received in the month. Other allowances will be included in the rest of the salary. But, if this amount exceeds 50%, then the additional amount will be considered as part of the salary.
Which part in salary is tax free and which is taxed
Basic salary, special allowance, bonus etc. are fully taxable. At the same time, allowances for fuel and transport, phones, newspapers and books are completely tax free. At the same time, there is a rule for computing HRA and under that rule HRA can be completely or part of it tax free. At the same time, the NPS contribution equal to 10% of the basic salary is also tax free, tax is to be paid on the additional amount. At the same time, no tax is to be paid on the amount deposited in gratuity up to Rs 20 lakh. The amount after that is taxable.
Tax on salary
Suppose your monthly CTC (Cost to Company) is Rs 1.5 lakh i.e. annual package of Rs 18 lakh and you take maximum tax exemption of Rs 1.50 lakh on investment under section 80C. If the company is also giving you the benefit of National Pension Scheme (NPS) under section 80CCD(2), then according to the rules, 10% of the basic salary goes to NPS and it is tax free.
Understand the salary structure
In the current salary structure, the basic salary is 32% of the CTC. In this sense, in the monthly CTC of 1.50 lakh, the basic salary will be Rs 48,000. If 50 percent i.e. Rs 24,000 HRA will go to NPS, 10% of the basic (Rs 48,000) i.e. Rs 4,800 will go. Because, 12% of the basic salary goes to the Provident Fund (PF), then Rs 5,760 will go to the EPF every month. In this way your monthly CTC of Rs 1.50 lakh has become Rs 82,560. The remaining Rs 67,440 is being given through other allowances. These include components like special allowance, fuel and transport, phones, newspapers and books, monthly share in annual bonus, gratuity.
Taxable part of salary will increase with the new structure
House Rent Allowance (HRA) ranges from 40 to 50 percent of the basic salary. In such a situation, it will be only 20 to 25 percent of the total monthly amount. Now if the basic salary, DA and RA together is mandatory to be 50% of the total monthly amount and HRA will be 20 to 25%, then it means that the share of the remaining allowances in the total monthly amount will be reduced to 25-30 percent.
How will the salary structure affect you?
In fact, due to the non-essentiality of 50% salary component in the monthly salary, more money was given in different types of allowances to save tax. But, due to the reduction of their share to 25 to 30 percent, the taxable part in the salary will increase. However, it is also true that there will be a marginal increase in the amount of tax. What are the implications of the new wage code take home salary on your take home salary, retirement savings and taxes…
Tax exemption rule on HRA
The rules for tax exemption on HRA are as follows.
1. The entire amount you are getting in HRA.
2. If you are working in a metropolis then 50% of the basic salary while if you are not in the metropolis then an amount equal to 40% of the basic salary.
3. Deduct 10% of basic salary from the rent you are paying every month.
Whichever amount is the least of these three, that amount becomes tax free.
How much exemption will be available on HRA
Based on the above calculations, you are getting Rs 2.88 lakh in HRA annually, but you can take tax exemption only on Rs 2.42 lakh, because according to the 3 conditions of HRA calculation rule, you can get maximum exemption on this amount . Suppose you are paying a monthly house rent of Rs 25,000, then your annual rent will be Rs 3 lakh. According to the rule, 10% of the basic salary i.e. Rs 57,600 will have to be deducted for Rs 3 lakh, which is Rs 2,42,400. You will get tax exemption on this amount.
Tax on HRA will increase in new salary structure
Now in the new salary structure, in the monthly CTC of Rs 1.50, the basic salary will be Rs 75,000. In this context, HRA will be Rs 37,500, EPF Rs 9,000, NPS Rs 7,500, fuel and transport Rs 10,000, phone Rs 1,000, newspapers and books Rs 1,000, bonus Rs 5,400 and gratuity Rs 3,600. In this case your HRA part has increased. Now your monthly rent will be the same Rs 25,000. However, HRA exemption will be available as before, but due to increase in the total amount of HRA, the additional amount of tax free will also increase and thus the tax will also increase.
What will change in the new salary structure?
According to the new rule, if the annual basic salary is Rs 9 lakh, then the HRA will be Rs 4,50,000. But, you will get tax exemption only on the exemption of Rs 2,42,400. That is, tax will have to be paid on Rs 2,07,600. Earlier, you had to pay tax on only Rs 45,600 received in HRA. That is, in the new salary structure, there is going to be a huge increase in tax on House Rent Allowance. If you compare the tax on annual CTC, then you have to pay a tax of 1.10 lakh (6.1% of the total CTC), which will be Rs 1.19 lakh (6.6% of the total CTC) in the new structure. In the new structure, your annual retirement savings will be Rs 3.06 (17% of CTC), which was earlier Rs 1.96 lakh (10.9% of CTC). This means that your annual retirement savings will increase by Rs 1.10 lakh in the new structure.
Take home salary will decrease
Your take home salary will decrease in the new structure. But, if you want to find some option for this, then you have a way. You can leave NPS, because whether to put or not to put money in it depends on your wish. Not so with EPF. You have to pay 12% of your basic salary. On leaving NPS, your salary structure can be like this-
Basic Rs 75 thousand, HRA Rs 37,500 (in metropolitan), Special Allowance Rs 2,400, EPF Rs 9,000, Fuel and Transport Rs 16,000, Phone Rs 2,000, Newspapers and Books Rs 1,500, Bonus (monthly share) Rs 3,000 and Gratuity Rs 3,600. In such a situation, the share of tax-free amount (including allowances for fuel and transport, phone, newspaper and books) will increase by Rs 19,500 in your total salary. Annual CTC will be taxed at Rs 1.19 lakh (6.6% of CTC), while Rs 3.06 lakh (17% of CTC) will be deposited in annual retirement savings.
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