Employees can expect a major change in their salary structures if the government notifies the New-Wage Code Bill 2021. The rules are likely to kick in from April 1. The changes are going to have a direct impact on your pockets as there could be a huge reshuffle in your salary. The new rule will affect various components from salary structure, EPF contribution, LTC vouchers to ITR filing.
Some of the major tax-related announcements in Budget 2021 are also going to come into effect from April 1, which means that ITR filing rules, EPF contribution, and taxation rules will come into force from next month. Significantly, for the first time in the country’s 73-year history, changes are being made in the labor law in this way. The government claims that it will prove beneficial for both employers and workers. Let’s understand what will change from April 1, 2021
CTC may increase with basic salary: If the new Wage Code is implemented on 1 April, the wages will be at least 50% of the total salary. This means that the basic salary should be 50% or more of the total salary from April. Today the basic salary of most companies is around 35% to 45%, this change, and increase to 50% when the new rules will apply.
Increase in PF but decrease in take-home salary: According to the new draft rule, basic salary should be 50% or more of the total salary. Increasing the basic salary will increase the PF, which means there will be a cut in take-home or on-hand pay. Currently, 12% of your basic salary now goes to PF. When the basic salary becomes 50% of the CTC, the contribution to the PF will also increase. For example, a person with a monthly CTC of Rs 40,000 will have a basic salary of Rs 20,000 and Rs 2,400 will go to the PF account.
Increase in retirement corpus: Increase in contribution to gratuity and PF will increase the amount received after retirement. This will make it easier for people to live a pleasant life after retirement. The salary structure of high-paid employees will undergo the biggest change as an increase in their PF and gratuity will also increase the cost for companies. Because companies will have to contribute more for these employees.
Tax on PF interest: With effect from April 1, 2021, interest on employee contributions for provident fund exceeding Rs 2.5 lakh per year will be taxable. This is in line with the announcement made by Finance Minister Nirmala Sitharaman in her budget speech.
ITR filings for senior citizens: Senior citizens above the age of 75, who have only pension and interest as a source of income, will be exempted from filing income tax returns. However, they will not be exempted from paying tax. The exemption for filing income tax returns will be available only if the interest income is earned in the same bank where the pension is deposited.
TDS at a higher rate for non-filers: A new section, 206AB, will be inserted in the Income Tax Act as a special provision providing higher rates for TDS for non-filers of income tax returns. In addition, individual taxpayers will be given pre-filled income tax returns (ITR). The move is aimed at easing the filing of returns.
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