New Delhi: As companies implement revised salary structures under new labour laws and income tax changes effective April 1, many salaried individuals are moving towards the new tax regime by default, according to various financial reports.

Why are salaries changing

From the new financial year, employee pay will reflect two major updates: implementation of revised labour laws and tax reforms announced in Budget 2026.

A key change is the new definition of “wages”, which requires basic pay and wage-linked components to form at least 50% of total compensation. This is prompting companies to increase basic pay while reducing flexible allowances like HRA, LTA, and other perks.

The objective is to simplify pay structures, improve compliance, and keep take-home pay broadly unchanged while aligning with regulatory requirements.

New regime becomes default choice

Simpler salary components naturally favour the new tax regime, which offers lower tax rates and fewer deductions. Many employees, unless actively opting for the old regime, will find themselves under the new structure automatically.

Who may still benefit from the old regime?

Certain employees may still find the old tax regime more beneficial, particularly:

  • Salaried individuals earning ₹10–30 lakh annually
  • Residents of metro cities like Mumbai, Delhi, Bengaluru, or Chennai
  • Those paying high rent, servicing home loans, or utilising Section 80C/NPS deductions

For such profiles, exemptions like HRA, education allowances, and meal vouchers can still reduce taxable income substantially.

Changes to salary slips

Employees may notice:

  • Higher basic pay to meet the 50% wage rule
  • Reduction in flexible or special allowances
  • Continued relevance of HRA for old regime users
  • Phasing out of smaller reimbursements
  • Potential introduction of tax-efficient benefits like car lease options

The bigger picture

Over time, leaner salary structures with fewer allowances will increasingly align with the new tax regime, making it the practical choice for most salaried individuals.

From April 1, while salaries may look different, the more significant shift is in how employees pay tax, with simpler structures and lower rates driving adoption of the new system.