7th Pay Commission: Govt Employees Could Get Up To Rs 60,000 As HRA From July

Come July and those working with the Central government will see the house rent allowance (HRA) component of their monthly salary increasing by as much as 122 per cent. This is despite a high-level committee recommending a reduction of two to six percentage points in HRA as a proportion of basic salary.

According to media reports, an Empowered Committee of Secretaries set up to screen the Seventh Pay Commission's recommendations on the allowances of Central government staff will send its proposals for the Union Cabinet's approval within 15 days. This implies the salary structure of Central government employees could change as early as next month.

What happened earlier?

The Union Cabinet in 2016 approved the recommendations of the Seventh Pay Commission, bringing cheers to more than one crore former and current government employees. Despite the fact that the salary raise suggested for government employees by the 7th Pay Commission is the lowest in the past 70 years in per cent terms — 14.27 per cent hike in basic, and 23.55 per cent hike including several allowances and perks — the boost in pay packets of government employees is going to bring a sea change to overall urban spend, and India's real estate sector could be the prime beneficiary of this.

According to the 7th Pay Commission's recommendations, the starting salary of a government employee should be Rs 18,000, against Rs 7,000 so far. The maximum salary bracket, likewise, should be increased to Rs 2,25,000 (for the upper bracket) to Rs 2,50,000 (for officers in the rank of the cabinet secretary), from Rs 90,000 at present.

It should be noted that many government employees, after this hike in their salaries, will earn better than their bosses in Parliament. The increased purchasing power of government employees is going to take urban demand by the storm, giving a huge push to revival of key sectors of India's economy, such as real estate.

What happens now?

Earlier, the Sixth Pay Commission had recommended that HRA of central government employees be fixed at 30 per cent, 20 per cent and 10 per cent of their basic salary in Class X, Y and Z cities and towns, respectively. However, the Seventh Pay Commission, while recommending a huge increase in basic pay, suggested that HRA as a proportion of basic pay be reduced by two to six percentage points for the different classes of cities and towns.

The high-level committee on allowances headed by Finance Secretary Ashok Lavasa recently approved of the Seventh Pay Commission's proposal to reduce the level of HRA as a proportion of basic pay. This means, you get 24 per cent of your basic salary as HRA if you live in a Class X city, 16 per cent of your basic pay in a Class Y city and eight per cent in case of Class Z city.

Even then, given the high level of increase in basic pay, these proportions would translate into a substantial HRA increase in absolute terms.

At present, a Central government employee at the lowest pay scale gets a basic pay of Rs 7,000. If he is living in a Class X city, at 30 per cent of basic salary, he is entitled to an HRA of Rs 2,100.

On the revised pay scale suggested by the Seventh Pay Commission, this employee's basic salary would increase to Rs 18,000 per month; at 24 per cent of basic pay, his HRA would come to Rs 4,320 per month. Compared with the present Rs 2,100, the new HRA would be 106 per cent higher, despite its reduced proportion in basic salary.

Similarly, at the highest pay scale, a central government employee at present gets a basic salary of Rs 90,000 per month. If he is living in a Class X city, at 30 per cent of his basic, he receives Rs 27,000 as the HRA component. With his basic salary increasing to Rs 2.5 lakh, the monthly HRA component (at 24 per cent) would increase to Rs 60,000 — an increase of 122 per cent.

If the HRA rates are maintained at the same level as that suggested by the Sixth Pay Commission, central government employees would see their HRA increasing in the range of 157 to 178 per cent.

How does this impact India's real estate?

Real estate has easily been the favourite asset class for government employees to park their money in. In fact, a study of the assets of Union ministers shows that most of their money is invested in immovable properties. With their salaries increasing, more than one crore government employees will surely look to the property market to invest part of their increased income. They are expected to bring more liquidity into the real estate market, which has suffered a slump in the past couple of years. That would not only make their investments lucrative but also help revive the property markets across India.

Of the total beneficiaries of the hike, about 58 lakh are pensioners. When they come looking for property, the demand for retirement homes in India is also likely to see a quick surge. This segment certainly needed a push to move in the right direction.

What class does my city come under?

The government has divided cities intro three classes only for the purpose of exending the HRA, depending on the cost of living in these cities.

Class X

Cities of Ahmedabad, Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai and Pune are classified as Class X cities.

Class Y

Here is a list of Class-Y cities:

Andhra Pradesh: Guntur, Nellore, Vijaywada, Warrangal, Greater Visakhapatanam,

Assam: Guwahati

Bihar: Patna

Chandigarh

Chhattisgarh: Durg-Bhilai Nagar, Raipur

Haryana: Faridabad, Gurgaon

J&K: Jammu, Srinagar

Jharkhand: Bokaro, Dhanbad, Jamshedpur, Ranchi

Karnataka: Belgaun, Gulbarga, Hubli-Dharwad, Mangaluru, Mysore

Kerala: Kannur, Kollam, Kozikode, Kochi, Malappuram, Thiruvananthapuram, Trissur

Madhya Pradesh: Bhopal, Indore, Gwaliar, Jabalpur, Ujjain

Maharashtra: Amravati, Aurangabad, Bhiwandi, Malegaon, Nagpur, Nanded-Waghala, Nashik, Kolhapur, Sangli, Solapur, Vassar-Virar

Odisha: Bhubaneswar, Cuttack, Raurkela

Puducherry

Punjab: Amritsar, Jalandhar, Ludhiana

Rajasthan: Ajmer, Bikaner, Kota, Jaipur, Jodhpur

Tamil Nadu: Coimbatore, Erode, Madurai, Salem, Tiruppur, Tiruchirappalli

Uttar Pradesh: Agra, Allahabad, Aligarh, Bareilly, Firozabad, Ghazaibad, Gorakhpur, Jhansi, Kanpur, Lucknow, Moradabad, Meerut, Noida, Saharanpur, Varanasi

Uttarakhand: Dehradun

West Bengal: Asansol, Durgapur, Siliguri

Class Z

Cities that are neither Class X nor Y fall into the Class-Z category.