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Dearness Allowances

CA Anil Jain (Chartered Accountant) (696 Points)

20 December 2007

What is meant by DA (IF) Forming the part of retirement benefit?

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CA. Amit Daga (Finance Controller CA. CS. CFA. CIFRS. M.COM. ) (9017 Points)
Replied 20 December 2007

Hi,Anil Retirement Benefits are . Pension · Death-cum-retirement Gratuity · General Provident Fund and Incentives · Contributory Provident Fund · Leave Encashment · Central Government Employees Group Insurance Scheme (CGEGIS) · TA for settlement at a station after Retirement DA is vary under different cases Pension The minimum eligibility period for receipt of pension is 10 years & above. However, a Central Government servant retiring in accordance with the Pension Rules is entitled to receive superannuation pension on completion of at least 10 years of qualifying service. In the case of Family Pension the widow is eligible to receive pension on death of her spouse after completion of one year of continuous service or before even completion of one year if the Government servant had been examined by the appropriate Medical Authority and declared fit for Government service. Pension is calculated with reference to average emoluments namely, the average of the basic pay drawn during the last 10 months of the service. Full pension with 33 years of qualifying service is 50% of the average emoluments. For qualifying service of less than 33 years, amount of pension is proportionate to the actual qualifying service broken into completed half-year periods. For example, if total qualifying service is 30 years and 4 months (i.e. 61 half-year periods), pension will be calculated as under:- Pension amount = R/2(X)61/66 where R represents average reckonable emoluments for last 10 months of qualifying service. Minimum pension presently is Rs. 1913 per month. Maximum limit on pension is 50% of the highest pay (including Dearness Pay) in the Government of India (presently Rs. 45,000) per month. Pension is payable up to and including the date of death. Commutation of Pension A Central Government servant has an option to commute a portion of pension, not exceeding 40% of it, into a lump sum payment with effect from 1.1.1996. No medical examination is required if the option is exercised within one year of retirement. If the option is exercised after expiry of one year, he/she will have to under go medical examination by the specified competent authority. Lump sum payable is calculated with reference to the Commutation Table constructed on an actuarial basis. (Appendix to CCS [Commutation of Pension] Rules, 1981.) The monthly pension will stand reduced by the portion commuted and the commuted portion will be restored on the expiry of 15 years from the date of receipt of the commuted value of pension. Dearness Relief, however, will continue to be calculated on the basis of the original pension (i.e. without reduction of commuted portion). The formula for arriving for commuted value of Pension (CVP) is CVP = 40 % (X) Commutation factor* (X)12 * The commutation factor will be with reference to age next birthday on the date on which commutation becomes absolute. Death-Cum-Retirement Gratuity (DCRG) Retirement Gratuity This is payable to the retiring Government servant. A minimum of 5 years qualifying service and eligibility to receive service gratuity/pension is essential to get this one time lump sum benefit. Retirement gratuity is calculated @ 1/4th of a month’s Basic Pay plus Dearness Allowance drawn before retirement for each completed six monthly period of qualifying service. There is no minimum limit for the amount of gratuity. The retirement gratuity payable is 16½ times the Basic Pay, subject to a maximum of Rs. 3.5 lakhs. Death Gratuity This is a one-time lump sum benefit payable to the widow/widower or the nominee of a permanent or a quasi-permanent or a temporary Government servant, including CPF beneficiaries, dying in harness. There is no stipulation in regard to any minimum length of service rendered by the deceased employee. Entitlement of death gratuity is regulated as under: Qualifying Service Rate Less than one year 2 times of basic pay One year or more but less than 5 years 6 times of basic pay 5 years or more but less than 20 years 12 times of basic pay 20 years of more Half of emoluments for every completed 6 monthly period of qualifying service subject to a maximum of 33 times of emoluments. Maximum amount of Death Gratuity admissible is Rs. 3.5 lakhs w.e.f. 1.1.1996 Service Gratuity A retiring Government servant will be entitled to receive service gratuity (and not pension) if total qualifying service is less than 10 years. Admissible amount is half month’s basic pay last drawn for each completed 6 monthly period of qualifying service. There is no minimum or maximum monetary limit on the quantum. This one time lump sum payment is distinct from and is paid over and above the retirement gratuity. Issue of No Demand Certificate Dues owed by the retiring employees on account of Licence Fee for Government accommodation, advances, over payment of pay and allowances are required to be assessed by the Head of Office and intimated to the Accounts Officer two months in advance of the date of retirement so that these are recovered from retirement gratuity before payment. For this purpose the Licence Fee for those in occupation of Government accommodation is taken into account up to the end of the permissible period for which accommodation can be retained after retirement under the Rules on normal rent. The recovery of Licence Fee beyond that period is the responsibility of the Directorate of Estates. If, for any reason final dues cannot be assessed on time, then 10% of gratuity or Rs. 1,000/- whichever is less, is withheld from gratuity General Provident Fund and Incentives As per General Provident Fund (Central Services) Rules, 1960, all temporary Government servants after a continuous service of one year, all re-employed pensioners (Other than those eligible for admission to the Contributory Provident Fund) and all permanent Government servants are eligible to subscribe to the Fund. A subscriber, at the time of joining the fund is required to make a nomination, in the prescribed form, conferring on one or more persons the right to receive the amount that may stand to his credit in the fund in the event of his death, before that amount has become payable or having become payable has not been paid. A subscriber shall subscribe monthly to the Fund except during the period when he is under suspension. Subscripttions to the Provident Fund are stopped 3 months prior to the date of superannuation. Rates of subscripttion shall not be less than 6% of subscriber’s emoluments and not more than his total emoluments. Rate of interest on GPF accumulations with effect from 1.4.2000 is 11% compounded annually and the rate of interest will vary according to notifications of the Government. The Rules provide for drawal of advances/ withdrawals from the Fund for specific purposes. Deposit Linked Insurance Revised Scheme Under the GPF Rules, on the death of subscriber, the person entitled to receive the amount standing to the credit of the subscriber shall be paid an additional amount equal to the average balance in the account during the 3 years immediately preceding the death of the subscriber subject to certain conditions provided in the relevant Rule. The additional amount payable under that Rule shall not exceed Rs. 60,000/-. To get this benefit, the subscriber should have put in at least 5 years service at the time of his/her death. Contributory Provident Fund The Contributory Provident Fund Rules (India), ,1962 are applicable to every non-pensionable servant of the Government belonging to any of the services under the control of the President. A subscriber, at the time of joining the Fund is required to make a nomination in the prescribed Form conferring on one or more persons the right to receive the amount that may stand to his credit in the Fund in the event of his death, before that amount has become payable or having become payable has not been paid. A subscriber shall subscribe monthly to the Fund when on duty or Foreign Service but not during the period of suspension. Rates of subscripttion shall not be less than 10% of the emoluments and not more than his emoluments. The employer’s contribution at that percentage prescribed by the Government will be credited to the subscriber’s account and this is presently 10%. Rate of interest with effect from 1.4.2000 is 11% compounded annually. The Rules provide for drawal of advances/ withdrawals from the CPF for specific purposes. As in GPF Rules, the CPF Rules also provide for Deposit Linked Insurance Revised Scheme. Earlier, the Government was giving option to CPF subscribers to switch over from CPF Scheme to GPF Scheme (Pension Scheme). The last such option was allowed based on the recommendations of 4th Central Pay Commission. A number of options have already been allowed as and when substantial improvements were made in the pension scheme. Because of the practical difficulties involved in retrieval of records and adjustments to be made, the demand for further option was not recommended by the 5th Central Pay Commission and as such there is no proposal with the Government to consider any further change in options. Leave Encashment Encashment of leave is a benefit granted under the CCS (Leave) Rules and not a pensionary benefit. Encashment of Earned Leave standing at the credit of the retiring Government servant is admissible on the date of retirement subject to a maximum of 300 days. There is no provision under the Rule for payment of interest on delayed payment of Leave Encashment. Central Government Employees Group Insurance Scheme A portion of monthly contributions paid while in service is credited in a Saving Fund, on which interest accrues. A Government servant while entering service has to apply in Form No. 4 of the above Scheme to the Head of Office, who shall issue a sanction for the payment of subscriber’s accumulation in the Savings Fund segment together with interest and arrange for its disbursement, soon after retirement. Payments under this Scheme are made in accordance with the Table of Benefit which takes in to account interest up to the date of cessation of service. Insurance cover benefit under this Scheme is available to the family in the event of death of the subscriber. No interest is payable on account of delayed payments under this Scheme.

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Devinder Malhotra (Retired) (88 Points)
Replied 05 July 2011

Very nice write up on "Retirement Benefits - Pension · Death-cum-retirement Gratuity · General Provident Fund and Incentives · Contributory Provident Fund · Leave Encashment · Central Government Employees Group Insurance Scheme (CGEGIS) · TA for settlement at a station after Retirement DA is vary under different cases Pension."

would be of immense value if following points are also incorporated:

tax implications of above retirement benefits vis.-a-vis. I.Tax Sections and how are each of these items to be reflected in relevant ITR1/ITR2?