Companies may take longer than expected to roll out revised employee salary structures under the Income-tax Act, 2025, several tax experts cautioned. With barely a couple of quarters since the implementation of the labour codes—under which corporates had to restructure salaries—companies are now grappling with fresh hurdles in aligning compensation with the new Income-tax framework.
The primary challenge stems from corporates having to recalibrate salary structures across two parallel reform tracks, experts said.
“The key hurdle corporates are facing is that salary structures are currently being re-evaluated simultaneously under two major reform tracks. On the tax side, employers are reassessing allowances, perquisites, exemptions and reimbursements under the Income-tax Act, 2025, and the Rules thereunder,” said Rajashree Sarna, Partner – Global People Solutions, Grant Thornton Bharat.
She added that the government has pushed for wider adoption of the new tax regime, with nearly 75% of individual taxpayers already opting for it. However, exemption thresholds under certain allowances—such as house rent allowance (HRA) and children’s education/hostel allowance—under the old tax regime have been increased. This requires employers to design compensation structures that work for employees under both regimes.
At the same time, under the new labour codes, a uniform definition of “wages” has been introduced, forming the basis for calculating statutory benefits such as provident fund, employee state insurance, gratuity and leave encashment. Tax experts noted that companies had only recently completed a detailed review of salary components to determine what qualifies as wages; incorporating changes under the new Income-tax Act has added another layer of complexity.
Until recently, experts said, the new tax regime was clearly more beneficial for most taxpayers.
“With the increase in exempt salary components, individuals will now need to undertake a more detailed optimisation analysis on a case-by-case basis (old vs new). From an employer’s standpoint, this introduces an additional layer of complexity. Companies will need to revisit payroll structures and support employees in evaluating the old versus new regime, increasing both advisory and administrative effort,” said Shaily Gupta, Partner, Direct Tax, Khaitan & Co.
Experts added that the timing of implementation has further complicated matters. With the final rules notified only in late March, many companies did not have adequate time to operationalise changes from the start of the financial year on April 1.
“Based on our interactions with corporates, implementation is likely to be staggered, with smoother adoption expected over the next few payroll cycles,” Gupta added.
For corporates, this means the transition to the new tax framework may be slower and more complex than initially anticipated.