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An important provision of the new labor codes in India is the 50% basic pay rule that will become effective in phases starting late in 2025 and through 2026 (with the new labor codes), most notably the Code on Wages, 2019.

It brings a standard definition of wages so that the aggregate salaries pay, dearness allowance (DA), and retained allowance should be at least half of the total salary (CTC).

When allowances (such as HRA, special allowance, and conveyance) are more than 50% of CTC, then the additional allowances are automatically contributed back to the wage base to determine statutory benefits such as Provident Fund (PF), gratuity, and overtime.

In the past, companies (particularly in the IT industry and the private sector) maintained base pay as low (30-40%) to reduce the amount that they paid employees. The new regulation will guard against this, making social security benefits more fair to employees.

Outcome: Increased PF and gratuity amount, but this may be accompanied by a reduced monthly take-home salary since more money is transferred to the taxable basic component. In order to comply, employers are reforming salary slips in 2026.