The decision comes more than a year after the pay of central government employees was increased.
The Central government on Wednesday hiked the house rent allowance (HRA) and 33 other allowances with an improvement over the recommendations of the Seventh Pay Commission, in a move that will benefit 40 lakh central government employees and defence personnel. This will also mean an expenditure of Rs 30,740 crore a year.
The decision comes more than a year after the pay of central government employees was increased.
The Union Cabinet, however, clarified that there would not be any retrospective benefit and the hike in these allowances will be effective July 1, 2017, unlike the revised pay granted from January 1, 2016.
Union Finance Minister Arun Jaitley, who briefed the media on Cabinet decisions, said a floor-level minimum monthly HRA for the lowest category of employees was fixed at Rs 5,400 in A-Class cities, Rs 3,600 in B-Class cities and Rs 1,800 in C-Class cities.
Instead of the Pay Commission's recommendation of static HRA of 24 per cent, 16 per cent and 8 per cent, respectively, in the three categories of the cities, the Cabinet, chaired by Prime Minister Narendra Modi, opted for a variable HRA to take care of price rise.
When the Consumer Price Index (CPI)-linked Dearness Allowance (DA) goes up to 25 per cent, the new HRA will be 27 per cent, 18 per cent and 9 per cent, respectively. This will further go up to 30 per cent, 20 per cent and 10 per cent when the DA rises to 50 per cent.
Jaitley said the annual burden of various improvements in the allowances will be little less this financial year since they will be implemented only from July 1.
On the recommendations of the Empowered Committee of Secretaries (E-CoS), set up in June last year when the Pay Commission report was accepted, the Cabinet decided to retain 108 allowances. The Commission wanted only 95 to be continued.
Jaitley said the Commission wanted to stop 53 allowances, while the Cabinet decided to discontinue only 43. A decision on 12 allowances in the Railways will be taken later.
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