DA, DR not to be automatically merged with basic once they reach 50%

Dearness Allowance (DA) and Dearness Relief (DR) will not be automatically merged into basics even after touching 50 per cent mark, a senior Finance Ministry official clarified on Friday. This is not good news for 49.18 lakh central government employees and 67.95 lakh pensioners.

On Thursday, the Union Cabinet approved hike in DA for Central Government employees and DR for Central government pensioners by 4 per cent with effect from January 1. With this DA and DR has reached 50 per cent mark. There was lot of speculation, whether DA/DR will be merged with basic as earlier, there used to be automatic merger.

Also read: Central Government employees and pensioners to receive 4% hike in DA and DR from January 1

However, when businessline enquired about this, a senior Finance Ministry official said ‘NO.’ Another official explained that the 5th Pay Commission had recommended that DA should be converted into Dearness Pay, each time the Consumer Price Index increases by 50 per cent over the base index used by the last pay Commission. Accordingly, the Government issued orders on February, 27 2004 for merging of 50 per cent of the DA with the basic pay w.e.f., January 1, 2004.

However, he said, the 6th Central Pay Commission had recommended not to merge DA with basic pay at any stage. Government accepted this recommendation. “7th Pay Commission has also not made any such recommendation,” he said which clearly means no automatic merger. This also means next installment of DA/DR will not start from ‘Zero’ but will continue after 50 say 52 or 53 or 54 per cent.

This clarification will see no change in the calculation of Housing Rate Allowance. According to the 7^th pay commission, entire country divided into three categories — X, Y and Z. Based on the recommendation, the HRA rate for X categories of cities (Delhi, Greater Mumbai, Chennai, Kolkata, Pune, Hyderabad, Bengaluru and Ahmedabad), has gone up to 30 per cent as against 27 per cent. Similarly, rate for various tier-II cities such as Bhopal, Lucknow, Patna, Varanasi, etc, which falls into the Y category will go up to 20 per cent from the present 18 per cent. Employees in all other locations will get HRA according to the Z category and the rate will be 10 per cent as against 9 per cent.

Based on minimum basic pay of ₹18,000, new rates of HRA will be ₹5,400, ₹3,600 and ₹1,800 respectively. Earlier, these rates were ₹4,860, ₹3,240 and ₹1,620 respectively. Had DA been merged into basic pay, the amount would have seen significant change.

Allowances such as transport allowance, staying accommodation allowance, dress allowance and gratuity etc. are revised upwards once DA reaches a certain level. However, these allowances are not calculated as percentage of value of DA. Rule says when DA touches 50 per cent, certain allowances and gratuity will be raised by 25 per cent.

Also read: No proposal under consideration to revert to Old Pension Scheme, says FinMin

It may be noted that based on the change in Consumer Price Index — Industrial Workers (CPI-IW), DA and DR are revised twice in a year. First revision is normally announced just before Holi and made effective from January 1. Similarly, second revision is decided just before Durga Puja and made effective from July 1.

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