Rs 1.82 cr higher retirement corpus if your basic salary of Rs 32K rises under new labour codes

The revised labour code can help an employee earning Rs 80,000/month accumulate an extra retirement corpus of Rs 1.82 crore through EPF and NPS contributions if his basic salary jumps by just 10% from 40% of your CTC to 50% under the new rules.

The employee can benefit from the revised labour code that makes it mandatory for an employer to keep the basic salary of an employee at least 50% of his cost to company (CTC).

A higher basic salary will automatically increase EPF and NPS contributions of an employee or NPS deduction through employer if he opts for a full limit of both schemes, resulting in a higher retirement corpus.

An EPF subscriber typically contributes 12% of the basic pay and dearness allowance (DA) as EPF contribution which is equally matched by the employer toward EPF and EPS. Moreover, an employee can get 10% of the basic salary and DA as employer contribution under the old tax regime and 14% of the basic salary and DA in the new tax regime as the highest NPS contribution.

Under the revised labour code, if the basic pay of an employee increases and his EPF and NPS contributions also rise, he can create a larger retirement corpus.

Calculation for employees who are near beginning of their career: Example of retirement corpus before and after labour code implementation

Let’s understand it precisely with the example of a 25-year-old employee with Rs 80,000 monthly CTC salary (Rs 9.6 lakh annual CTC), Rs 32,000 basic pay (40% of CTC) and 35 years of the EPF and NPS contribution period.

Assuming that he will contribute 12% of his basic pay in EPF and 14% in NPS and will increase the contribution by 5% every year, let’s calculate the difference in the retirement corpus under the current basic pay of Rs 32,000 and when his basic salary increases to 50%, or Rs 40,000.

If your monthly CTC salary is Rs 40,000 (Rs 4.8 lakh annual CTC) at 25 years of age, how large corpus you can create under new labour codes?

In the example above, we showed how can a 25-year-old with Rs 80,000 salary and 35 service years can generate a Rs 1.82 crore extra corpus. Now if all calculation conditions are the same except that the 25-year-old has a salary of Rs 40,000, he will still create an extra retirement corpus of Rs 91 lakh.

Calculation for employees at the middle of their career

If you are 40 years old and your salary is Rs 40,000, Rs 80,000 or Rs 1,20,000

What if you are in your mid-career and your salary is Rs 40,000, Rs 80,000 or Rs 1,20,000. We are assuming that since you are 40-year-old, you must have already created some corpus. We assume that-

At Rs 40,000 salary, your corpus is Rs 8 lakh

At Rs 80,000 salary, your corpus is Rs 16 lakh

At Rs 1,60,000 salary, your corpus is Rs 24 lakh

Now see how extra corpus you can create if your basic pay in each condition rises from 40% to 50%.

If you are 40 years old with Rs 40,000 CTC

In 20 years, you can create a Rs 17 lakh extra corpus.

If you are 40 years old with Rs 80,000 CTC

If you are 40 years old and your CTC is Rs 80,000, youcan still create an extra corpus of Rs 34 lakh.

If you are 40 years old with Rs 1,20,000 CTC

If you are 40 years old with Rs 1,20,000 as your CTC, youcan generate an extra corpus of Rs 51 lakh in 20 years.