HRA kept out of new pay formula for govt employees

The finance ministry has decided to create a category called dearness pay in addition to basic pay and the dearness allowance that constitute the pay package of 5.2 million civil and uniformed central government staff.

Effectively, this means the merged 50 per cent dearness allowance will not qualify for calculating their house rent and other allowances. At present, the house rent allowance is 30 per cent of a central government employee's basic pay.

Government staff have been demanding a merger of the dearness allowance, once it crosses 50 per cent, with the basic pay because it raises their pay-linked allowances.

Finance Minister Jaswant Singh spurred this hope by announcing the merger of the dearness allowance with the basic pay in the interim Budget 2004. The move, which was on the cards for some time, is seen as a direct appeal to middle-class voters to support the ruling coalition in the forthcoming elections.

The government has received flak from salaried employees for progressively curtailing their benefits in small savings schemes and under Section 88 of the Income Tax Act.

Finance ministry officials said the Centre's bill for merging the dearness allowance with the basic pay of its staff would be about Rs 3,500 crore a year.

But the employees stand to gain not more than Rs 1,000 in their monthly take-home pay.

A finance ministry official said the move was not out of line with the recommendations of the Fifth Pay Commission. "Colloquially, it is termed a merger of the dearness allowance with the basic pay. But the base for calculating all allowances remains the same," he said.

The commission had recommended a merger with the basic pay once the dearness allowance crossed 50 per cent. It had also recognised the cascading impact of the new formula for house rent allowance and had suggested that it be kept outside the dearness allowance revision.