Upcoming Changes to Salary, Retirement, and Tax Regulations in India

Significant Reforms Coming in April 2026

Starting from April 1, 2026, a series of crucial changes regarding salaries, retirement savings, job transitions, and taxation will be implemented, impacting nearly every salaried individual in India. Below is a detailed overview of these upcoming modifications and their implications.

Transformations in Your Pay Slip

For years, many companies maintained a low basic salary, often constituting only 25% to 40% of the total Cost to Company (CTC). This strategy minimized contributions to the Employees' Provident Fund (EPF) and gratuity, allowing for higher take-home pay. However, this practice will cease. According to the new Code on Wages, the basic salary, along with Dearness Allowance (DA) and retaining allowance, must now account for at least 50% of the total CTC. As most private sector jobs lack DA or retaining allowance, businesses will need to significantly boost the basic salary component. If allowances exceed the 50% threshold, the surplus will be classified as wages for PF and gratuity calculations. This regulation will apply universally across all companies in India.

Increased Retirement Contributions with Short-Term Pay Adjustments

With the rise in basic salary, contributions to EPF and gratuity will also increase. Consequently, while your immediate net income may decrease, your retirement savings will grow at a faster rate over time due to the higher contribution amounts. Additionally, you can expect a more substantial gratuity payout when leaving a job. For sectors such as IT, BPO, retail, and hospitality, this change will elevate statutory costs by 5-15%. Many organizations are currently revising their salary structures to comply with the new regulations.

Faster Final Settlements After Job Changes

One of the most favorable changes for employees is the new rule regarding final settlements. Previously, it could take anywhere from 30 to 90 days to receive full and final payments after leaving a job, which often led to cash flow issues during transitions. Effective April 1, companies will be required to settle all wage-related dues within two working days of your last working day, regardless of whether you resigned, were terminated, or laid off. If there are delays, employees can report to the state Labour Department and may even claim interest on the overdue amount. Note that this two-day rule applies solely to salary and related dues, while gratuity still follows a 30-day timeline, and EPF transfers adhere to the standard EPFO process.

Introduction of a New Income Tax Act

India will replace the outdated Income Tax Act of 1961 with a new Income Tax Act, effective April 1, 2026. While tax rates and most deductions will remain unchanged, the new law simplifies the framework by reducing the number of sections from 819 to 536 and chapters from 47 to 23. The language used in the new Act is clearer, making it more accessible for the average taxpayer. It is important to note that income earned until March 31, 2026, will still be governed by the old Act, while income from April 1, 2026, onwards will fall under the new regulations.

Simplification of Tax Terminology

The previously confusing distinction between “Previous Year” and “Assessment Year” will be eliminated. Moving forward, there will be a single term — Tax Year. Therefore, income earned between April 1, 2026, and March 31, 2027, will simply be referred to as Tax Year 2026-27.

Tax Relief for International Travel and Education

If you plan to travel abroad or remit money for education or medical expenses overseas, you will benefit from reduced Tax Collected at Source (TCS). Starting April 1, TCS on international tour packages and foreign remittances (under LRS) will be set at a flat 2%, down from the previous rates of 5% or 20%. This change will enhance cash flow as less money will be withheld upfront, although the actual tax liability remains unchanged and will be settled when filing your return.

Revised Tax Rules for Sovereign Gold Bonds

Investors in Sovereign Gold Bonds (SGBs) purchased from the secondary market should be aware of new tax implications. Previously, capital gains at maturity were entirely tax-exempt. However, from April 1, this exemption will only apply to those who acquired SGBs directly from the RBI during the initial issuance. Buyers from the secondary market will now be liable for taxes on gains at maturity.

Extended Timeframe for Tax Return Corrections

Taxpayers will now have 12 months (instead of 9) from the end of the tax year to file revised returns. However, if you file after the 9-month period, an additional fee will apply.

Quick Recap

For salaried employees: Anticipate a higher basic salary, increased EPF deductions, and a slight decrease in take-home pay initially. However, your long-term retirement savings will be more robust.

• For job changers: Expect to receive your full dues within two working days of leaving your job.
• For taxpayers: A new, simplified Income Tax Act will take effect, with rates and deductions largely unchanged.
• For frequent travelers: Enjoy lower TCS on foreign travel and education remittances.
• For SGB investors: Be aware of changing tax rules for bonds purchased from the secondary market.

The government's current reforms in labor laws and taxation aim to enhance clarity and fairness for both employees and employers. It is advisable to consult with your HR or tax advisor soon to understand how these changes will affect your salary and financial situation.