New Labour Laws: The Indian government recently announced the new labour laws and this translates to higher tax-efficient wealth by FY26–27. Let us find out how much you will be able to earn, save and invest.
For most salaried employees in India, the real story is usually a shift from “allowance-heavy” cash salary to a more regulated, retirement-focused structure.
What’s Actually Changing with the New Labour Laws?
India has merged 29 older labour laws into four Labour Codes: Wages, Social Security, Industrial Relations and Occupational Safety. A new and uniform definition of “wages” say that your basic salary plus dearness allowance plus retaining allowance must be at least 50 percent of total cost to company. This means that employers can no longer keep the basic salary component artificially low and push on inflating allowances just to cut provident fund and gratuity outgo.
Going forward, statutory benefits like EPF, gratuity and some social security calculations will be based on this higher, standardized “wage” number and not just a small basic component.
Impact on Salary & In‑Hand Pay-New Labour Laws
If your current basic is less than 50 percent of your cost to company, the company will have to either raise basic or reclassify allowances, which will automatically raise the base on which employee provident fund at 12 percent gets calculated.
How Your Savings Grow by FY26–27?
Now that your wages will get fixed at 50 percent of the cost to company, you could see annual PF contributions (employer + employee) rise by several thousand to tens of thousands of rupees, all going into an EEE (largely tax-advantaged) retirement corpus. Since gratuity is now computed on a higher and broader wage base (approximately half of CTC instead of a small basic), exit payouts at job change or retirement will be significantly larger than under the old rules.
What This Means for FY26–27 Planning?
Taxable income gets reduced due to higher EPF contributions under both old and new regimes (within the overall ₹7.5 lakh cap on employer retiral benefits), partially offsetting the pain of a lower in‑hand salary. For short term (next 12-18 months), you can expect modest pressure on monthly liquidity. For medium term, you would now be able to build a more predictable and larger retirement and severance cushion without having to take conscious investing decisions each month.
