FAQ on Dearness allowance

What is dearness allowance?

The government pays dearness allowance (DA) to the central government, state government and public sector employees and retirees as a cost-of-living allowance to protect them from rising prices. DA is computed using the employee's basic wage based on the pay scale and combined with additional components to determine take-home pay.

How is dearness allowance calculated?

Every year, between January and July, the dearness allowance is calculated. The government revised the formula for calculating the dearness allowance in 2006 as recommended by the seventh pay commission. Dearness allowance was determined using the following formula, DA = (Average of the All-India Consumer Price Index (Base year -2001 =100) for the last 12 months -115.76)/115.76 x 100 for central government personnel (Average of the All-India Consumer Price Index (Base year -2001 =100) for the last three months -126.33)/126.33 x 100 for Central Public Sector Employees. However, the government had revised the AI CPI-IW series to the base year 2016. Hence a linking factor of 2.88 is used for calculating the D.A. 

Read: DA calculation as per the AI CPI-IW series with base 2016

Have there been revisions in dearness allowance?

The central government currently as of December 2021 gives a 31 per cent dearness allowance to its employees, w.e.f July 2021. The dearness allowance is revised once every six months - during January ad July of every year.

Is the dearness allowance taxable?

The dearness allowance component must be reported separately in the income tax returns or ITRs in India, according to the income tax rules. For salaried employees, DA is entirely taxed.

Is there any other form of dearness allowances?

Apart from dearness allowance, there are industrial dearness allowance and variable dearness allowance. The industrial dearness allowance is paid to central government employees who work in the public sector. To assist counteract the impact of rising inflation, the industrial dearness allowance is amended quarterly and is based on the Consumer Price Index (CPI).

Find the DA calculator here - Dearness Allowance (DA) from January 2022 Calculator