Income-tax Act 2025 crosswalk
Income-tax Act 2025 meets the Labour Codes: the full crosswalk
Published 13 Aug 2026 · Reviewed 13 Aug 2026
Why this crosswalk matters
Two new baselines went live within five months of each other. The four Labour Codes took effect on 21 November 2025. The Income-tax Act 2025 followed on 1 April 2026. Final Central Rules under the Codes landed later still, on 8 May 2026.
Payroll teams often treat these as two separate projects. They are not. A labour-code change is rarely payroll-neutral once its tax consequence is worked out. This guide lines up each Code change against its Income-tax Act 2025 section, so nothing gets fixed on one side and missed on the other.
Most state rules are still draft, not final. Only Gujarat and Arunachal Pradesh had all four Codes fully notified as of the last check. Treat Central Rules as settled and state-level detail as moving.
The crosswalk table
| Labour-code change | Old Income-tax Act, 1961 | Income-tax Act 2025 | Net effect |
|---|---|---|---|
| Gratuity (Social Security Code §53) | §10(10) | §19, Table Sl. 5–6 | Computation base goes up; the ₹20 lakh exemption ceiling is unchanged |
| Leave encashment (OSH Code §32) | §10(10AA) | §19 Sl. 13–14 | Encashment amount goes up; the ₹25 lakh cap is static |
| Retrenchment compensation (IR Code, Chapter IX) | §10(10B) | §19, Sl. 10–11 | Higher compensation base; same “least of the formula” exemption rule |
| Voluntary retirement (IR Code exits) | §10(10C) | §19, Sl. 12 | ₹5 lakh exemption cap unchanged |
| Non-monetary perquisite gross-up shelter | §10(10CC) | Schedule III, S.No. 10 | Shelter survives intact, renumbered |
| Employer fund contribution (International Worker PF) | §17(2)(vii)/(viia) | §17(1)(h)/(i) | Same ₹7,50,000 perquisite cap; International Worker PF routinely exceeds it |
| PF interest above ₹2,50,000 | §10(11)/(12) provisos | Schedule II, Sl. 3–4 | Interest above the threshold stays taxable |
| Employee PF/ESI contribution due date | §36(1)(va) | §29 | Late deposit still disallowed to the employer; the exact cut-off date is not fully settled — treat the stricter labour-law date as the working assumption |
| Employer-side accruals (bonus, leave, gratuity fund) | §43B | §37 | Deductible only on actual payment, not on accrual |
| Tax regime and slabs | §115BAC | §202 | New regime is now the default; slab rates are unchanged |
| Perquisite valuation (housing, car, expat benefits) | §17(2) plus Rule 3 | §17 plus the Income-tax Rules 2026 | Same valuation mechanics; the specified-employee salary threshold moved from ₹50,000 to ₹4,00,000 |
| House rent allowance | §10(13A) plus Rule 2A | Schedule III, S.No. 11 | Mechanics carried over |
Two extra items worth flagging even though they sit outside the main table. Schedule XI carries forward the five-year continuous-service rule for tax-free provident fund withdrawal — relevant for anyone exiting employment early. And the standard deduction sits at ₹75,000 under §19, Sl. 2, unrelated to any Code change but easy to under-apply when a payroll build is mid-migration.
Reading the table in payroll order
Two changes should be read together first: the Code on Wages’ 50% wages-deeming rule and the gratuity row above. Where excluded pay components — allowances, bonus, employer PF and similar — exceed 50% of total remuneration, the excess is added back into “wages” for benefit calculations. Gratuity is computed on that inflated wages figure. The exemption ceiling under §19, Sl. 5–6 has not moved. So more of a departing employee’s gratuity payout can now cross into taxable territory, even though nothing changed in the tax law itself. The change came from upstream, in the wages definition.
The same logic applies to leave encashment and retrenchment compensation. The Codes changed what counts as “wages” or the compensation base; the Income-tax Act 2025 kept its exemption ceilings exactly where they were. Illustrative: an employee with a ₹12 lakh CTC and a heavily allowance-weighted structure could see their deemed-wages gratuity base rise by roughly 25–45% under the Code on Wages. This depends on how the CTC was originally split. Every case needs its own recomputation, not this range applied directly.
The employer-fund-contribution row deserves its own note for any company running an India shadow payroll. International Worker PF is computed on the full global package, uncapped, under EPF Scheme Para 83. This is a rule the Labour Codes have not replaced, since the Social Security Code’s own EPF machinery is not yet notified. That uncapped PF contribution routinely exceeds the §17(1)(h) cap of ₹7,50,000 — the yearly limit above which employer retirement contributions become taxable pay for the employee. The excess, plus its accretion, becomes taxable perquisite income under §17(1)(i). See our shadow payroll guide for the full mechanics.
The two timing rules that trip payroll teams
§29 and §37 look similar — both are about when a deduction is allowed — but they answer different questions, and mixing them up creates real exposure.
§29 is about the employee’s share of PF and ESI. If the employer deposits it late, the deduction is disallowed, potentially permanently. The precise due date under the 2025 Act is not fully settled: . Until this is confirmed, run payroll to the stricter date.
§37 is a different rule entirely — it governs employer-side accruals: bonus, leave encashment, and gratuity-fund contributions. These are deductible only when actually paid, not when accrued. A company that books a bonus provision in March but pays it in June gets the deduction in the year of payment, not the year of accrual. This is the 2025 Act’s version of the old §43B “actual payment” test, carried forward with the same substance.
What to check first
Start with the wages-definition changes, since they cascade into almost every row of this table. Confirm how your CTC structures split between “wages” and excluded components. Then recompute the 50% test on the 8 May 2026 Central Rules text, not on an earlier draft.
Next, check whether your payroll system references the old section numbers anywhere — in tax computation logic, in Form 16 templates, or in vendor configuration. The renumbering is mechanical, but a hardcoded “§10(10)” reference in a formula will not update itself.
Finally, two open questions in this article affect real payroll decisions and deserve a direct check with your tax advisor before this cycle’s filings: whether §29’s PF/ESI due date is the labour-law remittance date or the relaxed ITR-filing date, and whether HRA exemption carries over under the new tax regime.
General guidance, not legal advice. Confirm the open items with India counsel or your payroll provider before relying on this crosswalk for a live filing.