Cabinet Approves 3% DA Hike for Central Government Employees

On Thursday, the Cabinet, chaired by Prime Minister Shri Narendra Modi, approved a hike in the Dearness Allowance (DA) and Dearness Relief (DR) for Central Government employees and pensioners. The Centre increased the DA rate for employees and DR for pensioners by 3% of the basic pay or pension.

The Cabinet approved releasing an additional instalment of DA to employees and DR to pensioners effective from 1 July 2021. The 3% DA and DR hike is over the current 28% of the basic pay or pension to compensate for the price rise. There is an expectation that the DA hike will help the employees and pensioners to face the rising inflation.

The DA and DR hike increase is as per the accepted formula based on the 7th Central Pay Commission recommendation. The combined impact on the exchequer of the DA and DR increase would be Rs.9,488.70 crore per annum. The DA and DR hike will benefit around 47.14 lakh Central Government employees and about 68.62 lakh pensioners, respectively.

In September 2021, the department of expenditure issued a memorandum stating that the retired Central Government employees will receive gratuity and cash payment. On 14 July 2021, the Centre had hiked the DA and DR for government employees and pensioners by 11%. Thus, resulting in a hike of 28% from 17% of the basic pay or pension. 

The hike of 28% in DA and DR cost the exchequer an additional Rs.25,800 crore for the July-March period of FY22. The increase reflected the three additional frozen instalments. The Centre had frozen additional DA and DR instalments due from 1 January 2020, 1 July 2020, and 1 January 2021, owing to the COVID-19 situation in the country.

The DA and DR enhancements will support consumption in the economy as the state governments conventionally follow the Central Government’s pattern on DA and DR. It will help the government employees and pensioners financially in the current rising inflation situation. 

For any clarifications/feedback on the topic, please contact the writer at mayashree.acharya@cleartax.in

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