Dearness Allowance (DA) or dearness relief (DR) is a percentage of employees’ basic salary intended to address the inflationary impact on households of central government employees. A rise in DA gives employees a higher in-hand salary and a buffer against rising living costs.
DA is usually revised every six months by the All-India Consumer Price Index (AICPI), with new announcements in early March and October and rollouts in and July of the same year.
DA hikes: Inflation allowance increased 2% in April
In April, the Ministry of announced a 2% hike in DA, applicable to all central government employees and pensioners (including railways and defence personnel), effective from 1 January 2026, raising the component to 60% of basic pay from 58%.
Notably, the is calculated on the 12-month average as per the method prescribed by the AICPI under the 7th Pay Commission. Under this CPC, there have been 10 hikes since 2021, with the highest at 11% in July 2021. The past two hikes were 2% and 3%, respectively, for January and July 2025.
What are the types of Dearness Allowance?
For calculation purposes, DA is separated into two categories: industrial and variable DA.
- Industrial DA: This is reviewed quarterly for central government public sector employees based on the Consumer Price Index ().
- Variable DA: This applies to all central government employees and is revised twice a year, based on the CPI, to offset inflation.
When calculating DA, it comprises the base index (which remains fixed for a given period) and CPI (used to calculate VDA). Even though CPI numbers are released every month, VDA only changes when the Centre revises the basic minimum wages.
Who benefits from the DA hike?
DA is usually provided by the central government for its employees. The private sector in India has not offered the same for its employees or .
As many as 50 lakh central government employees, including defence personnel, and around 65 lakh retired central government pensioners, including defence retirees, will benefit from the DA hike. Notably, there are 18 levels of employees, and individual hikes will depend on the employee’s or pensioner’s level, as their basic pay differs from level to level.
Is Dearness Allowance part of CTC? Is it subject to income tax?
DA is part of an employee’s cost-to-company () and is credited to the monthly salary of central government employees. As per the ministry, payments on account of DA involving fractions of 50 paise or more may be rounded off to the next higher rupee, and fractions of less than 50 paise may be ignored.
DA for salaried employees is subject to income tax in its entirety. Income-Tax Rules mandate that the DA component is stated separately in a taxpayer’s I-T returns ().
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