The Centre recently increased the dearness allowance (DA) and dearness relief (DR) for central government employees and pensioners by 28 percent (from the existing 17 percent) with effect from July 1.
The revision comes after around 18 months (January 2020 to June 2021) after the benefit was stopped till June 30, 2021, due to the COVID-19 pandemic.
The government's move will benefit around 4.5 million central government employees and around 6.5 million pensioners adding up to over 11 million current and past employees. The government will have to bear an additional burden of Rs 34,401 crore.
Here are key things to know:
The monthly salary of central government employees will increase from July 1, 2021.
If the basic salary is Rs 10,000 and the existing DA per month was Rs 1,700 as of June 2021, then July monthly DA payable to the employee will be Rs 2,800.
The increase in DA will result in a proportionate increase in the monthly Provident Fund (PF) and gratuity component of the employees. Both PF (monthly) and gratuity are deducted as per an employee's basic salary plus DA.
The DA rate is announced twice a year (January to June and July to December) to adjust against any rise in inflation.
The government will have to bear an additional burden of around Rs 22,935 crore in FY2022 due to DA and DR hike for its employees.
The government had announced a hike of 4 percent DA (from 17 percent to 21 percent) in March 2020 but subsequently had put a freeze on it. A similar DA hike of 3 percent was announced for July to December 2020 period and 4 percent for January to June 2021.
These employees (and pensioners) will not get arrears.
Employees will get more house rent allowance (HRA) – an increase of 1-to-3 percent as per class of different cities from August 1, 2021. The government announced that the new HRA will be 27 percent (existing was 24 percent), 18 percent (16 percent) and 9 percent (8 percent) of basic pay for X (50 lakh plus population), Y (5 lakh plus population) and Z (less than 5 lakh population) class of cities respectively.
This is a result of the department of expenditure’s order on July 7, 2017, which said that when the DA crosses 25 percent, HRA will also increase.
The minimum HRA for all three categories will be Rs 5,400, 3,600 and Rs 1,800 from August 2021.