With nearly 122 per cent hike, government employees set for HRA bonanza

The biggest gain for central government employees from the Seventh Pay Commission comes not in the form of their basic pay, but from the changes made to House Rent Allowance ( HRA). This component will more than double, with the increases ranging between 106 per cent and 122 per cent.

The pay panel has revised the rates at which HRA is to be paid to 24 per cent, 16 per cent and 8 per cent respectively for Class X, Y and Z cities and towns. The existing rates of HRA for these cities and towns were 30 per cent, 20 per cent and 10 per cent respectively . Class X towns are those with populations of over 50 lakh, Class Y are those whose population is between 5 lakh and 50 lakh while the Z class towns are those with populations under 5 lakh.

So how does the HRA component rise so dramatically when the rates have actually come down? The answer lies in the fact that HRA is calculated on basic pay alone. While the overall emoluments of babus will rise on average by 23.55 per cent, their basic pay will go up more than two-and-a-half times.Thus even getting a smaller fraction of the much higher new basic pay as HRA yields well over the current levels of the allowance.

Take, for instance, a babu at the very bottom of the income ladder, where the entry pay is now Rs 7,000, would currently be entitled to an HRA of Rs 2,100 in a Class X city, of which there are eight in India. The new entry pay at this level is Rs 18,000. The new HRA for a Class X city would thus be Rs 4,320, which is 106 per cent more than the existing level. The same proportions would apply for Class Y and Z cities and towns, though the absolute levels of the current and proposed HRA would be lower.

At the other end of the income scale, the Cabinet Secretary and officers of the same rank have a basic of Rs 90,000, which means an HRA of Rs 27,000 in Class X towns. At the new basic pay of Rs 2.5 lakh, the HRA would be Rs 60,000, a hike of 122 per cent.

The pay panel has also recommended that the rates of HRA will rise to 27 per cent, 18 per cent and 9 per cent for the three classes of cities when the dearness allowance crosses 50 per cent and to 30 per cent, 20 per cent and 10 per cent when it reaches 100 per cent.