Can My Net Take-Home Pay Really Be Less Than My Basic Salary? Let's Discuss!

Is it possible that my net take-home pay is lower than my basic salary? I have not taken any leaves, nor do I have any loans against my name. As far as I know, it is not possible, but my HR is challenging that it is possible.

Understanding Basic Salary and Net Take-Home Pay

Basic here means the basic component of your salary structure, right? If that is so, then no, your net take-home pay should not be lower than your basic salary.

Regards,
Mahib_ul

Yes, if a monthly salary is 25,000/- and you have joined in the middle of the month (even a day less than a month or worked days with acceptable leave, etc.), the net salary is certainly less than your basic. However, the situation could change if you have served for a whole month; the net salary will not be less than this, provided you have not taken a loan, LOP, etc. Anyway, you have a great mind in HR, so be careful.

Salary Deductions and Take-Home Pay

Deductions from salary cannot exceed 50% of the gross amount (or 75% if the deduction includes payments to an employee cooperative). If your basic salary is more than 50% of the gross salary and the deduction is at its maximum, your take-home pay can fall below the basic amount.

Understanding Deductions and Net Take-Home Pay

Are you a beginner or a senior? A wild guess: supposing you were absent for a long period, naturally, your earnings will be meager. At the same time, you will have other deductions such as official quarters or leased accommodation provided by the company, HR-related deductions, court attachments, and other recoveries (all fixed amounts), if any, etc. These aggregated deductions may exceed your fixed basic salary, resulting in your net take-home pay being reduced.

Can you provide me with your gross salary so that we can accurately calculate the possible deductions, such as IT deduction, PF/ESI/WC, or any other statutory deductions that may occur?

Salary Reduction and PF Impact

A rigid reduction of salary by $8500 cannot result in a decrease of take-home salary by $500, even considering the new PF rules. The impact of PF increase is limited to ₹1020 (or ₹1800 if you were earlier not covered by PF).

You do not need any law or rule in the act to say this is not possible. You got a salary slip, I hope. Check the comparison of components. What appears to have been done is to restructure the salary components to avoid PF. Then this is something for which the company can get into severe trouble.

Can you provide the details of the salary breakdown for comparison, i.e., the previous one and the current one, to the forum to give you an appropriate view?

Rectify me if I am wrong... Net salary can be lower than take-home salary. I am saying this from my practical experience as a management professional, competent in laws, accounting, and financial audits.

For example, if someone has asked management to deduct more in the PF account contribution, then funds MAY BE transferred from basic into the PF account, thus making the net salary lower than the basic.

Again, suppose there is some item of salary for which management has done TAX DEDUCTION at the source, then the net salary may become lower than the gross.

Many loopholes are there. I think we should advise the guy to provide the details of the PAY SLIP so that we can give a concrete reply. Alternatively, we can advise the guy to meet a Chartered Accountant or Company Secretary in practice, provide him with details of his salary for a minimum of 1 year, and then request him to provide a certificate of his analysis. Thus, if there is any mistake, the CA/CS can detect and point it out, and the certificate must be ratified by the membership number of CA/CS with ICAI/ICSI and signature.

An experienced auditor knows what to write in such a certificate. I hope you understood.

And I am pretty sure HR can't challenge a qualified auditor without a valid reason(s). Thus, either explain the payslip to the employee or accept the ratified certificate of a qualified CA. A Gentleman's solution.

Thanks and Regards,

Sovik B

Most companies fix the Gross Salary, and 40 to 50% of it will be the Basic salary to reduce PF/ESI/Bonus/Gratuity liability. In your case, the Basic salary, which was $6,500 earlier, was revised to $15,000. Please let us know:

1. What was your Gross Salary earlier?
2. What is your Gross Salary after the revision (i.e., when your Basic was revised from $6,500 to $15,000)?

This information may help us understand the motive behind revising the Basic to more than double the earlier amount. Is it to avoid PF/ESI, etc.? Please provide a breakdown of deductions to understand the calculation of take-home pay and how the increase in Basic has resulted in a reduction of take-home pay.

Email: [Email Removed For Privacy Reasons]

Kindly provide the requested details for further analysis.

Thank you.

There may be rare chances of such a case, as told by Mr. Sovik. If the Basic is contributing 99% of the Gross Salary after revision and the other component contributes 1%, there are chances where the Net Take-Home salary can be lower than Basic. However, an appropriate view can be given only after looking at the comparison of the current and previous salary structure. It would be wrong to give vague answers in general.

Payment of Wages Act Compliance

The Payment of Wages Act specifies that the total deduction from gross wages cannot exceed 50% of the gross salary. Therefore, for the in-hand salary to decrease beyond that, the basic must be more than 50% of the gross. However, the original poster clarified that their basic was ₹6,500, and now it's ₹15,000, but their take-home has decreased from ₹13,000 to ₹12,500. This is definitely not right. It appears that the management is trying to restructure the salary to avoid PF or is deducting increased PF, including the employer's contribution, from employees' gross salary. Both of these actions are illegal.

I cannot think of any circumstance in which an increase in basic pay would result in a reduction of the gross salary. It appears to be a case of pure manipulation. However, as you rightly pointed out, the original poster does not seem interested in sharing their payslip (before and after the salary restructuring), so we are only conducting an academic exercise to improve our knowledge.

Due to the increase in wages beyond ₹10,000, the query is beyond the scope of the Payment of Wages Act under Section 1(6). Even under Section 7, deductions of up to 75 percent can be made. There does not appear to be any other law governing the impermissibility of payment of wages below the basic pay, except in cases of attachment by the court under the Code of Civil Procedure (CPC).

Regards.