Employees expecting a larger monthly salary after annual appraisals could see changes in their salary breakup depending on how companies structure compensation, according to financial experts speaking on Zee Business. The experts said that if companies align salary structures with the new labour code provisions, some employees could experience changes in take-home pay due to higher retirement-linked contributions.
Speaking on the subject, Pankaj Mathpal, Managing Director, Optima Money, said concerns around in-hand salary are understandable, but outcomes would depend on how employers design salary packages.
“If the basic salary component forms a larger share of total compensation, Provident Fund (PF) contributions can also increase because both employee and employer contributions are linked to basic pay,” Mathpal explained.
He said this could potentially reduce monthly take-home salary in some cases because deductions may rise. However, he added that companies may also absorb part of the impact through salary revisions so that employees do not necessarily see a significant fall in in-hand income.
Mathpal stressed that higher contributions may also strengthen long-term financial security.
“Higher contributions can eventually create a larger retirement corpus. Immediate take-home income and long-term savings need to be viewed together,” he said.
Why salary structures could change
Mutual fund expert Vishwajeet Parashar explained that many companies have traditionally kept the basic salary component lower while increasing allowances, which reduced mandatory contributions such as PF.
“Earlier, in many salary structures, basic pay often accounted for around 20–30 per cent of total compensation, while the remaining amount came through allowances such as HRA and special allowances,” Parashar said.
He explained that if companies move toward structures where basic salary forms a larger portion of total compensation, PF contributions for both employers and employees could increase.
Using an example, he said that if an employee earning Rs 1 lakh earlier had a lower basic salary component, a higher basic pay structure could increase PF deductions.
According to Parashar, this may create short-term pressure on take-home salary in some cases but could also strengthen retirement benefits through larger PF accumulation and higher gratuity calculations over time.
He added that the broader objective discussed was greater social security through stronger retirement savings.
CTC versus in-hand salary: What employees should understand
The experts also stressed that employees should not confuse Cost to Company (CTC) with the amount credited to their bank accounts each month.
Mathpal explained that CTC can include several costs and benefits beyond direct salary payments.
“Employer PF contribution, health insurance premiums, meal vouchers and other benefits may be part of the overall package. CTC reflects the company’s total cost and does not necessarily mean that the full amount comes as take-home salary,” he said.
Parashar added that annual bonuses, incentives and performance-linked benefits can also make compensation packages appear larger than the actual monthly payout.
“Employees should focus on understanding the salary breakup and what ultimately reaches their account,” he said.
Tax regime choice could also matter
Mathpal said the salary structure can influence tax planning, particularly for employees using the old tax regime.
He noted that components such as HRA, LTA, meal-related benefits and other allowances may provide tax benefits in some cases. However, he emphasised that such benefits apply only if they form part of the salary structure and if employees meet the relevant eligibility conditions.
Parashar added that younger employees or those with relatively lower salaries and fewer deductions may continue to find the new tax regime suitable because of its simpler structure.
He said employees with larger deductions, including home-loan-related benefits and other eligible components, may still find the old tax regime more useful depending on their specific circumstances.
What employees should review after appraisal
According to the experts, employees should pay attention to:
- Basic salary component
- Employee and employer PF contributions
- HRA and other allowances
- Gratuity calculations
- Variable pay and incentives
- Tax-related components
- Actual monthly in-hand salary
The discussion highlighted that a larger CTC does not automatically translate into a larger salary credit each month. Experts said employees should focus on understanding the complete salary structure and how different components affect both immediate take-home income and long-term financial benefits.
