The new labour and tax laws will come into effect from April 1, 2026 in India. It will restructure the salaries, deductions, and tax calculations for salaried employees. Let’s take a closer look at what will change
Published: March 30, 2026 2:24 PM IST
Change in payslip
Indian companies kept the basic salary component artificially low, often between 25 and 40 per cent of total pay. This was done to keep the Employees’ Provident Fund (EPF) and gratuity at a minimum. Under the Code on Wages, 2019, a uniform definition of ‘wages’ has been introduced. Now, basic pay, Dearness Allowance (DA), and retaining allowance must together form at least 50 per cent of an employee’s total cost to the company (CTC).Since DA and retaining allowance are not a part of the private sector, most companies will now be required to raise basic pay.Add India.com as a Preferred Source
More EPF deduction, due to be cleared in two days
With higher basic pay, EPF contributions, and gratuity will also rise. For employees, this means that their monthly take-home pay could dip slightly. This means a substantially larger retirement fund. Gratuity payouts at the exit will also be higher.One of the most employee-friendly reform is that the Full and Final (F&F) settlement will be reduced. Under the old system, employees had to wait anywhere between 30 and 90 days to receive their pending salary, leave encashment, and other dues. Now, companies must clear all wage-related dues within two working days of an employee’s last working day. In case of failure to comply, employees can approach state Labour Departments to seek redress and interest on delayed payments.Change from assessment year to tax year
India is replacing the existing Income Tax Act, 1961, with the new Income Tax Act, 2025. While the new law does not change tax rates or most deductions, it does rewrite the law in clearer language. One of the most confusing terms was the Previous Year and Assessment Year. While Previous Year is when income was earned, the Assessment Year is when returns were filed, and tax was assessed. But the gap between the two often led to genuine confusion among taxpayers.Change in sovereign gold bonds
Investors didn’t have to pay any capital gains tax on Sovereign Gold Bonds (SGB), regardless of whether they purchased them during the initial RBI issuance or from the secondary market.But now, this exemption will be restricted to investors who subscribed directly through the RBI during primary issuance. If you hold SGBs bought from the stock exchange, capital gains at maturity will now be taxed at 12.5 percent as long-term capital gains.More time to fix filing errors
The window to file a revised income tax return is being extended from 9 months to 12 months from the end of the tax year, giving taxpayers three extra months to correct omissions and errors. Although there is a catch. Filing a revised return after the 9-month mark will now attract a fee, even though the window remains open.Source link
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