7th Pay Commission: Important news for government employees, PF contribution may change from July'21

The EPF contribution of Central government employees is set to increase with the revision in the dearness allowance (DA) rates. Contribution to the Employees’ Provident Fund (EPF) is made by both the employee and the employer. The employer’ contribution is set at 12% of the basic salary plus DA and the employee also makes an equal contribution.

Currently, the central government employees are entitled to 17% DA. It came into effect from July 2019 and was revised upward by 4% in January 2020, 3% in June 2020. It was further increased by 4% in January 2021 to 28% of the basic pay. However, these revisions were suspended in the view of COVID-induced economic disruptions.

The overall DA is expected to increase from existing 17% to 28%. This revision will further hike the PF contribution made by Central government employees. The three pending DA instalments of the Central Government Servants will be ‘subsumed’ and the revised rates will come into effect from 1st July 2021.

DA is paid to the central government employees twice a year and the instalments for 1 January 2020, 1 July 2020, and 1 January 2021 will be restored. The allowance is directly linked to the employee’s cost of living and the consumer price index.

What is Dearness Allowance?
Dearness allowance is a sum of money given to government employees to improve their standard of living and cushion the impact of inflation on their lifestyle. Across the world – only India, Pakistan and Bangladesh give this allowance to government employees and pesnioners. DA is linked to All India Consumer Price Index (AICPI).

A revision in DA directly impacts provident fund, house rent allowance, travel allowance and medical allowance of central employees. Increasing the DA to 28% will not only increase the salaries of the central employees but will also hike their PF contribution, which will earn higher interest.