PF Contribution Of 50 Lakh Govt Employees Will Increase From This Date: Find Out Why?

Under the 7th pay commission DA and DR will be added to salaries and pensions of central govt employees by July 1, 2021.

The dearness allowance (DA) of central govt employees will be kept on hold till June 2021 as announced by the Indian govt. 


Why The Govt Put DA/DR On Hold

The govt had kept DA and DR (Dearness Relief) of 3 installments on hold which were due on January 1, 2020, July 1, 2020, and January 1, 2021.

The move was made by the govt due to the Coronavirus contagion. It allowed for the govt to save Rs 37,430.08 crore as the country battles the unrelenting pandemic.

Under the 7th pay commission DA and DR will be added to salaries and pensions of central govt employees by July 1, 2021.

This announcement affects 52 lakh serving central govt employees and 65 lakh retired pensioners, for whom DR is a protective measure against inflation.

They have been long awaiting restoration of DA and DR benefits respectively.

Restoration Of Arrear Installments

Minister of State (MoS) for Finance, Anurag Singh Thakur has clarified that the 3 installments of allowance payments will resume from July 1, 2021.

However, it was also clarified that once the DA freeze is lifted, DA arrears from January to June 2020, July to December 2020, and January to June 2021 will then be added to the employees’ salary.

DA/DR Hikes & Effect On Salary Components

Workers’ Provident Fund (PF) is calculated in consideration of the basic salary along with DA. 

Therefore one’s monthly PF contribution or long term PF balance and take home pay will see a direct increase. This rise in DA will see a positive effect on an employee’s DA, HRA, Travel Allowance, and Medical Allowance.

As per the latest data from All India Consumer Price Index (AICPI), the installments of:

  • January to June 2021- will see a 4% DA hike
  • January to June 2020- 3% DA hike
  • July to December 2020- 4% DA hike

will be added to existing DA of employees, which currently stands at 17%.

DA Hike and Impact on Take Home Pay

A hike of upto 28% from 17% can also be expected if DA is not further put on hold.

This 11% rise comprises the 4%+3%+4% hikes as mentioned above. 

For eg, an employee’s basic pay is Rs 18,000. If we consider a DA hike of 28%, their DA component will increase to Rs 5,040. 

If their DA was 17%, the figure would stand at Rs 3,060.

This increase in DA will consequently affect PF and gratuity, both of which will increase.

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