Good News For Pensioners! 7th CPC: Calculate 2% DA Hike On Rs 9,000, Rs 18,000 Pensions Per Month

DA Hike: In a major good news for government employees and pensioners, the Union Cabinet-led by PM Narendra Modi on Friday, hiked dearness allowance (DA) by 2%. The lates hike is going to be effective from January 1, 2025 to June, 30, 2025. The biggest gainers from this hike are pensioners. 2% hike is going to increase pensions per month.

As per the Finance Ministry, dearness allowance (DA) has been increased by 2% to 55% compared to the rate of 53% of the Basic Pay/Pension. The move is to compensate against price rise.

FinMin data revealed that the combined impact on the exchequer on account of the increase in both dearness allowance and dearness relief would be Rs. 6614.04 crore per annum. This will benefit about 48.66 lakh central government employees and 66.55 lakh pensioners. Also, the increase is by the accepted formula, which is based on the recommendations of the 7th Central Pay Commission.

Under 7CPC, at a fitment factor of 2.57 times, the basic minimum pay increased to Rs 18,000 from Rs 7,000 per month. While the minimum pension payout surged to Rs 9,000 from Rs 3,500 of 6CPC.

Let's Calculate a 2% DA Hike Impact On Pensions By Taking The Following Example:

What Is Dearness Allowance (DA)?

DA is decided by the Indian government twice every year. It is a parameter that is announced to support government employees and retirees against inflation. DA is an adjustment to the cost of living. A hike in DA would eventually increase the basic salary and pensions. DA benefits apply to all government officials, central undertaking workers, public sector workers, members of Parliament, and both central and state government employees with the exception of civil servants.

Calculation Of Dearness Allowance:

Dearness Allowance is calculated as a percentage of an Indian citizen's minimum salary to curb the impact of inflation on employees. Indian citizens under government organisations, may receive a basic salary or pension that is then supplemented by a housing or a dearness allowance, or a mixture of both. The government changed DA formula in 2006.

For Central Government Employees:

DA% = [(Average of AICPI (Base Year 2001 = 100) for the last 12 months - 115.76)/115.76] x 100

For Public Sector Employees:

DA% = [(Average of AICPI (Base Year 2001 = 100) for the last 3 months - 126.33)/126.33] x 100

Calculate 2% DA Hike For Pensioners:

Minimum Pension: Rs 9,000 per month.

DA at 53%: Rs 4,770 (Rs 9000 X 53%)
DA at 55%: Rs 4,950 (Rs 9,000 X 55%).

There is about Rs 180 surge in DA, and that will eventually raise pensions as well.

Minimum Pension: Rs 18,000 Per Month

DA at 53%: Rs 9,540
DA at 55%: Rs 9,900

The DA climbs by Rs 360 on basic pension of Rs 18,000 per month.

It needs to be noted that the latest DA hike is the lowest in seven years.

Since the 7th Pay Commission came into effect, the government has hiked DA either by 3% or 4%. The only exception was during the COVID-19 pandemic, when the government halted any changes in dearness allowance for a period of 18 months, from January 2020 to June 2021.

But after that, they continued the tradition of hiking DA twice every year. DA is revised once in March for a half-yearly period of January to June every year, while the second revision is announced between October to November for the second half-year from July to December in that year.

The last hike in DA was announced in October last year to the tune of 3%.

As per Income Tax guidelines, the dearness allowance is fully taxable.

If the employee has been provided with an unfurnished rent-free accommodation, it becomes that part of the salary up to which it forms the retirement benefit salary of the employee, provided that all other pre-conditions are met. The Income Tax rules in India require the dearness allowance component to be mentioned separately in the returns that have been filed, ClearTax report said.