'₹2.13 crore gain, ₹4,800 loss': Tax expert explains new labour law's impact on your salary

India’s new labour laws may shrink your monthly in-hand salary—but they could quietly add over ₹2 crore to your retirement fund, according to Sujit Bangar, founder of taxbuddy.com.

In a detailed LinkedIn post, Bangar broke down how mandatory structural changes under the new labour codes are shifting the salary composition of formal sector employees to boost long-term savings through Provident Fund (PF) and National Pension Scheme (NPS) contributions.

Previously, basic salary comprised around 35% of the total cost to company (CTC), allowing a larger share to flow into tax-friendly allowances while keeping PF and NPS deductions relatively low. “Older structures deliberately kept PF lower,” Bangar noted.

But under the revised codes, basic salary must now form at least 50% of CTC—automatically increasing both PF and NPS contributions, since both are calculated as a percentage of basic pay.

For a 30-year-old employee with a ₹12 lakh CTC, monthly PF contributions (from both employer and employee) will rise from around ₹7,200 to ₹12,000. This ₹4,800 monthly increase, when compounded over three decades, translates into a staggering ₹1.24 crore in additional PF savings.

NPS, which also scales with basic salary, adds another ₹1.07 crore over the same period. Together, the total retirement corpus jumps from an estimated ₹3.46 crore to ₹5.77 crore over 30 years.

Bangar emphasized that this automatic compounding of retirement benefits outpaces most voluntary savings tools. “Mutual fund SIPs usually break within 3–5 years. FDs get liquidated. But PF and NPS are automatic, compulsory, deduction-based—and that’s why they build lifetime wealth,” he wrote.

While short-term take-home pay may decline, Bangar argues the new regime delivers long-term financial security through enforced savings discipline.