7th Pay Commission: Know How Monthly PF Contribution Will Get Impacted From July

There is less to cheer for central government employees, as the government has announced freezing Dearness Allowance (DA) till June 2021. This comes amid a deteriorating economic situation in the wake of looming lockdown and other restrictions already implemented in key cities across the country.

What’s the announcement?

The government has announced that DA for the central government employees will be kept on hold till June 2021, as per the business daily Mint.

Despite this announcement, the government has clarified that once the DA is restored, all three installments of DA arrears spanning from January to June 2020, July to December 2020, and January to June 2021 — will be added to their salary.

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How it will impact PF contribution?

An individual’s monthly Provident Fund (PF) contribution is calculated on the basis of the basic salary in addition to DA. Hence, this rise will directly increase one’s monthly PF contribution or PF balance in the long term.

If you go by the All India Consumer Price Index (AICPI) latest data, a 4 per cent DA hike for January to June 2021, 3 per cent DA for January to June 2020, and 4 per cent DA for July to December 2020 can be expected to get added in employees’ existing DA, which is currently at 17 per cent.

In case the DA is not further delayed, then the same is expected to rise up to 28 per cent from 17 per cent.

This will automatically lead to rising in monthly PF contribution of central government servants (CHS) as well and accordingly this rise will also mean an increase in PF balance in the long run since more PF interest will get accumulated in the PF account.

Almost 52 lakh central government employees along with 58 lakh retired central government employees or pensioners have been anxiously awaiting DA and Dearness Relief (DR) benefit restoration, respectively, which stands frozen till June 2021.

Similarly, DR benefit for pensioners’ may also get restored from July 2021 if there is no further extension in DR benefit froze till June 2021. Similar to DA for central government employees, DR benefits are given to the retired central government employees to help them beat the inflation cost.