With the government deciding on de-freezing the dearness allowance and hiking it to 28, a milestone that the employees have been waiting for - DA crossing the 25% mark has happened. This means that the HRA entitlements across all categories will rise. The House Rent Allowance (HRA) for the central government employees from July 2021 will be 27%, 18%, and 9% for the X, Y, and Z category cities respectively. The current rates are 24%, 16%, and 8%.
The recommendations by the 7th Central Pay Commission, which had set the HRA at 24%, 16%, and 8% had initially called for the increment to 27%, 18% and 9% when DA reaches 50% and further to 30%, 20% and 10% when the DA reaches 100%. Subsequently, the Allowance Committee constituted by Central Government recommended that these hikes at 25% and 50% of DA, which was accepted and implemented by the government. The accepted recommendation is as follows
HRA shall be revised to 27%, 18%, and 9% of Basic Pay in X, Y, and Z cities when Dearness Allowance (DA) crosses 25% and further to 30%, 20%, and 10% of Basic Paycities when DA crosses 50%.
The cities are classified based on the population i.e. X category with a population of 50 lakh & above, Y category with a population of 5 to 50 lakh, and Z category city with below 5 lakh residents.
Also, the monthly Provident Fund (PF) contribution is calculated on the basis of a central government's basic salary plus DA. The DA hike will lead to rising in one's monthly PF contribution or PF balance in the long term.
One more benefit arising out of the DA hike is the increase in the gratuity amount, which depends on the last drawn salary. It is calculated as years of service multiplied by the last drawn salary. The salary means the sum of the basic pay and the dearness allowance. The gratuity amount is one of the points raised by those who retired when the DA Freese was in place as the gratuity amount will be based on the earlier lower DA.