Dearness Allowance was last revised by 2% in April this year, effectively taking the component to 60% of the basic pay for central government employees and pensioners. DA for employees and Dearness Relief (DR) for pensioners is aimed at mitigating higher inflation.
About 50 lakh central government employees and around 65 lakh retired central government , including defence personnel and retirees, will benefit from an increase in DA and Dearness Relief (DR) components. These also include public sector staff, defence personnel, bank employees and pensioners.
Available only to public-sector employees, it is fully taxable and subject to income tax at the applicable slab rate. Notably, DA is adjusted twice a year for inflation by the All-India Consumer Price Index (). New announcements are usually made in March and October will rollouts in January and July, respectively.
What is the formula used to calculate Dearness Allowance?
DA hikes are calculated based on the AICPI’s 12-month average, using the method prescribed by the 7th pay commission. The formula used is as follows, according to Clear Tax:
For central government
DA percentage = [(Average of AICPI (Base Year 2001 = 100) for the last 12 months – 261.42) / 261.42] x 100
For public sector employees
DA percentage = [(Average of AICPI (Base Year 2001 = 100) for the last three months – 126.33) / 126.33] x 100
Thus, the 2% announced in April was calculated using the AICPI’s 12-month average formula as follows:
DA percentage = (145.54 × 2.88 − 261.33) / 261.33 × 100
= (419.155 − 261.33) / 261.33 × 100
= 157.825 / 261.33 × 100 = 60.39%
This has been rounded down to 60%, which means the component was hiked 2% from the previous 58% of the .
8th pay commission discussions ongoing
The Centre’s 8th (8th CPC) is conducting meetings with employee representative groups, unions and stakeholders to gather recommendations on pay hikes, allowances, salary structure, and more. Constituted every 10 years, the panel is expected to make significant decisions impacting salaries of central government employees and pensioners, including railways and defence staff.
As per the plan, the CPC is expected to submit its final recommendations around 18 months after its constitution on 3 November 2025. This means that the earlier we can get the panel’s submissions, the better. February 2027 is the earliest we can get them.
Further, based on past trends, once the pay commission’s are made, the rollout takes another 2 to 3 years to complete. This means that hikes announced in 2027 may only be fully implemented by 2029 or 2030.
Could employees get another DA hike this year?
India’s surged to a new high of 9.68% in May from 8.26% in April, driven by a sharp rise in fuel, crude petroleum and manufactured chemical and metal product prices. According to government data, retail inflation in May also rose to 3.93%, while food inflation climbed to 4.78%.
Vegetables such as tomato, ginger and raisin were among the items that had the strongest inflationary pressure. Rising prices of food (milk, vegetables and other essentials), power and fuel (CNG, diesel and petrol) are putting on household budgets, and an adjustment in DA would significantly help address inflation concerns for burdened middle-class households, lower-income groups and daily commuters.
Reports feel that another announcement could come this year in July or September amid inflationary pressures and as employees and pensioners seek relief against steadily rising living expenses.