The Centre has given its approval to the proposal for hiking dearness and house rent allowances. The dearness allowance (DA) has been increased to 28 per cent from the earlier 17 per cent. Additionally, the house rent allowance of HRA has also been increased to 27 per cent. This is because, as per an order issued in 2017, when the DA exceeds 25 per cent, the HRA also has to be revised accordingly.
With effect from July 2021, therefore, the DA will be 28 per cent, which automatically results in a revision in HRA.
Since these revisions will be incorporated immediately, the employees can take home a bumper salary in August.
However, the HRA will vary from city to city, based on the cost of living of each location. As per the Finance Ministry, the cities will be classified into three categories – X, Y and Z. While the revised HRA for employees in the X category cities will be 27 per cent of their basic pay, the HRA for employees from Y-category cities will be 18 per cent of their basic pay. Similarly, the HRA for Central government staff in the Z-category cities will be nine per cent of basic pay.
In case the population of a city crosses five lakhs, it then gets included in the Y category. Accordingly, the HRA also gets doubled, from nine to 18 per cent of the basic pay.