3 major changes to DA revision raised; Will 8th Pay Commission consider what 6th, 7th CPC didn't?

Three long-pending Dearness Allowance (DA) demands have resurfaced before the 8th Pay Commission. These include quarterly DA revisions instead of half-yearly, merging DA into basic pay at a lower 25 percent threshold and paying DA tax-free. Employee bodies had raised these demands before the 6th CPC but the 7th CPC did not consider them. If the 8th CPC accepts these proposals then it could provide significant relief to central government employees and pensioners.

What are the DA demands raised again?

Several employees' bodies have submitted memorandums to the 8th Pay Commission asking for three major changes to DA.

Quarterly DA revision instead of half-yearly

Currently, the DA is revised twice a year. Employee unions want it to be reviewed every three months based on inflation.

Merging DA into basic salary upon reaching 25 percent

Employee unions want DA to be merged with basic salary once it exceeds 25 percent.

Exemption of DA from income tax

Employee unions demand that DA should be exempt from income tax as it is meant to provide relief against inflation.

How 6th and 7th Pay Commissions approached these demands

The 6th CPC clearly mentioned these demands in Chapter 4.1 under the heading “Demands Made.” It demanded that instead of revising the DA once in six months, it should be revised once in three months. Secondly, the principle laid down by the 5th CPC for the merger of 50 percent of DA with the Pay as DP should be modified to 25 percent to remove distortions in the pay structures. Also, DA should be paid net of taxes on the same line as recommended by the 5th CPC to make the concept of 100 percent neutralization somewhat meaningful.

The 7th CPC did not consider any of these demands. Its report contains no discussion of quarterly DA revision, a proposal to merge DA with basic pay at a 25 percent trigger and reference to tax-free DA.

What are employees seeking from the 8th Pay Commission?

As the 8th Pay Commission prepares its report, all three DA demands have resurfaced. Several employee bodies have submitted memorandums to the 8th CPC urging the Commission to consider these changes.

The Bharat Pensioners Samaj (BPS) has sought quarterly revision of DA/DR on the basis of the three-month average with point-to-point compensation and examination of the merger of DR with basic pension after it exceeds 25 percent.

The FNPO’s memorandum said that the 8th CPC may recommend a merger of DA/DR with Basic Pay whenever it crosses 25 percent. It also said that point-to-point DA without rounding-off should be provided. In the FNPO’s chapter on income tax reform, it said that allowances such as DA, HRA and Transport Allowance are compensatory, intended to offset rising living costs and  not to represent wealth growth. Taxing these creates a circular logic: the government provides inflation relief only to reclaim a portion via the tax code. These allowances must be fully exempted from income tax. The FNPO maintained that DA being an inflation-neutralisation tool should be treated as non-taxable reimbursement.

How will these demands influence decision of 8th CPC panel?

The three-member 8th Pay Commission, headed by Justice Ranjana Prakash Desai, will review these demands and suggestions from employee unions while preparing its final recommendations.

As of now, all three DA demands of quarterly DA revision instead of half-yearly, a lower 25 percent threshold for merging DA into basic pay and DA paid net of tax remain undecided. Central government employees and pensioners should remember that these are only proposals and not confirmed benefits. They will become applicable only if the central government approves them.