On Wednesday, the Union cabinet approved the new allowance structure for central government and defence staffers. It will give their pay cheques a significant bump from next month.
This comes as a part of the 7th pay commission. The biggest jump in the salaries will be seen in the hike in House Rent Allowance, as it will increase by 45%.
The decision is also likely to spur spending and prop up demand, which sagged since the demonetization move in November last year.
Salaries of government employees in India are divided into several components, including multiple ‘allowances’ based on their jobs.
Finance minister, Arun Jaitley, said that the government decided to follow the Committee of Allowances’ suggestion not to abolish 12 of the 53 allowances that 7th pay commission wanted to be scrapped.
The move will cost the government Rs 30,748 crore annually.
Pay Commissions are set up by the country to revise remunerations for government employees.
The latest one, the 7th pay commission, led by former SC judge, Ashok Kumar Mathur, had recommended many allowances to be scrapped or bunched together.
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Sharing details, Jaitley said the Pay Commission recommended a reduction in the HRA rates to 24% for X-, 16% for Y- and 8% for Z- category cities.
“As the HRA at the reduced rates may not be sufficient for employees falling in lower pay bracket, it has been decided that HRA will not be less than Rs 5400, Rs 3600 and Rs 1800 for X, Y and Z category of cities respectively.
“This floor rate has been calculated at 30%, 20% and 10% of the minimum pay of Rs 18,000. This will benefit more than 7.5 lakh 1 to 3 levels of employees,” the minister said.
“The Central Pay Commission had recommended revision of HRA when dearness allowance reaches 50% and 100 %. The government decided to revise rates when DA crosses 25% and 50% respectively”, he added.
X category cities are ones with a population of more than 50 lakh, Y with 5-50 lakh people and Z with less than 5 lakh.
