7th Pay Commission: The government increased dearness allowance (DA) by 2 per cent to 7 per cent in March on the recommendations of 7th Pay Commission, but there is some more good news for central government employees as the base year of Consumer Price Index (CPI) is set to change for calculating the allowance. When it happens the dearness allowance will also increase for employees.
Dearness allowance is paid to keep in tune with the increasing cost of living. It is paid as a percentage of salary to adjust the cost of inflation, as an increase in the rate reduces your purchasing power. For example, assuming 7 per cent inflation, today’s Rs 1,00,000 will be worth just Rs 13,000 after 30 years.
Here are five things you should know about dearness allowance
The existing base year for calculating dearness allowance is 2001 and the last time it was revised in 2006 by the 6th Pay Commission to 2001 from 1982.
- The labour ministry has reportedly finalised 2016 as the new CPI-IW base year
- Dearness allowance for Central Government employees is calculated using the formula: Dearness Allowance % = ((Average of AICPI (Base Year 2001=100) for the past 12 months -115.76)/115.76)*100
- For Central public sector employees dearness allowance is calculated using the formula: Dearness Allowance %= {(Average of AICPI(Base year 2001=100) for the past 3 months – 126.33)/126.33}*100
- The new index will reportedly also increase new industrial centres to 88 against 78 now. Several new items are set to be added to the list including cars and mobiles to be in line with the changing habits of people over the last decade and so.
- The labour ministry has reportedly has the required approval. It will now go to the technical advisory committee for vetting, after which it will go to the national tripartite consultation.
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