Dearness Allowance: From DA hikes to pay arrears and other key announcements — Check latest updates, FAQ answers here

Dearness Allowance (DA) is a percentage of employees’ and pensioners’ basic salaries that aims to mitigate the impact of rising living costs for central government employees and retired pensioners, providing a buffer against inflationary pressures.

Updated biannually using data from the All-India Consumer Price Index (AICPI), new announcements are made in March and October, with rollouts in January and July. The last hike was announced in April, when the Finance Ministry increased DA from 58% to 60% of basic salary, effective from 1 January 2026.

About 50 lakh central government employees and around 65 lakh retired central government pensioners, including defence personnel and retirees, will benefit from an increase in DA and Dearness Relief (DR) components.

Dearness allowance: Key FAQs answered

Can we expect a second DA hike this year? Employees and pensioners are expecting another hike announcement this year.

How is the DA hike calculated? 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:

• For Central Government Employees: 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

Why is DA hike important? DA is a component of the salary break-up for central and public sector employees, aimed at mitigating the rising cost of living. Notably, the basic salary also determines other components of compensation, such as provident fund contributions, pension, allowances, gratuity, and more. Thus, higher DA, especially given DA merger demands, could lead to a substantial and automatic increase in overall pay and, consequently, in the other dependent allocations.

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 (CPI).
• Variable DA: This applies to all central government employees and is revised twice a year, based on the CPI, to offset inflation.

What is DA merger? The 7th CPC, which revised DA calculation formula also stipulated that DA be merged with basic salary if it exceeds 50%, according to a Bank Bazaar report. As of the last DA hike, the component is now 60% of basic pay and may rise further if another hike is announced in July. Expectations are of a 3-4% hike in the month. Multiple employee unions and representative groups have demanded that the Centre make an official announcement on DA merger — given that DA now exceeds 50% of basic salary. Till now, the Centre has clarified that no such proposal is currently under consideration.

Is Dearness Allowance part of CTC? DA is part of an employee’s cost-to-company (CTC) 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.

Is DA subject to income tax? 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 (ITR).

When is the 8th Pay Commission decision expected? As per the usual timeline, the CPC is expected to submit its final recommendations around 18 months after its constitution, which means that the earliest we can expect an announcement is February or April 2027.