Dearness Allowance or DA is a part of the salary structure in the payroll system of India. It is provided by the Indian government to its pensioners and employees to offset inflation. Effective from January 2024, the DA was raised by 4% to 50% for central government employees. 


Although the government has taken various measures to control inflation, prices may still rise based on market movements. Since the impact of inflation varies by location as well, the DA in income tax is also calculated accordingly. 


Therefore, it differs from one employee to another depending on sectors such as rural, semi-urban, and urban sectors.

Calculation of Dearness Allowance

Dearness allowance is revised twice a year, once in January and then in July. The formula for DA calculation was revised by the government in 2006. The present formula is as follows:

  • For Central Government Employees

DA % = {(Average AICPI (Base Year 2001 = 100) for the last twelve months - 115.76 ) / 115.76} * 100

  • For Public Sector Employees

DA % = {(Average AICPI (Base Year 2001 = 100) for the last three months - 126.33 ) / 126.33} * 100

In this case, AICPI stands for the All-India Consumer Price Index

Treatment of Dearness Allowance under Income Tax Act

Dearness Allowance is taxable under the Income Tax Act, 1961, and it is entirely taxable for salaried employees. If the employee has an unfurnished and rent-free accommodation, then it becomes a part of salary. It also becomes a part of the retirement benefit of the individual if all the conditions are met. 

The Income Tax Act rules state that the DA component must be separately mentioned in the ITR when filed.

Role of Pay Commission in Dearness Allowance Calculation

The pay commission evaluates and revises the public sector employees’ salaries based on the several sections within the employee’s pay slips. This includes updating the factor of multiplication and periodic reviewing for the calculation of DA for tax purposes. Hence, DA is considered by the pay commission while making the next report.

Types of Dearness Allowance

Dearness allowance are of two types, these are:

  • Variable Dearness Allowance

Employees of the central government receive a variable dearness allowance. It is revised twice a year based on the Consumer Price Index (CPI). The CPI changes each month and it is an important factor in variable DA calculation.


There are three components involved in the calculation of variable dearness allowance. They are:

  1. Consumer Price Index (CPI): It is a price index, which measures the average change in prices that consumers pay over a period of time for goods and services

  2. Base Index: It refers to the year with which you compare the values from other years during calculations

  3. The variable DA amount fixed by the central government 

  • Industrial Dearness Allowance

The Industrial Dearness Allowance is applicable to public sector employees. The government revises the dearness allowance rate on a quarterly basis, and it is centred around the Consumer Price Index (CPI).

Difference Between DA and HRA

Dearness allowance DA and House Rent Allowance (HRA) are two distinct portions of a salary slip. Here are some differences between the two outlined below:  


Dearness Allowance 

House Rent Allowance 


DA refers to the cost-of-living adjustment that the government offers to public sector employees

HRA refers to a component of your salary that aids in fulfilling the needs for renting accommodation


It is paid to public sector and central government employees only

It is available to both private and public sector employees


It is calculated as a fixed percentage of the salary of a public sector employee

It is not calculated based on basic salary

Taxation Rules

It is entirely taxable and has no exemptions

It is partially taxable and the employee can claim some exemptions under the I-T Act


The dearness allowance rate is revised periodically

It does not change unless the structure of the salary changes

Dearness Allowance Merger

The DA for public sector employees has been growing since 2006 to compensate for the rising inflation. The figure now stands at 50% of the basic salary for public sector as well as central government employees. 


According to the rules, in case DA percentage goes above the 50% mark, it should be combined with the base salary. It helps boost salaries of employees as other components of the salary are calculated by keeping this increased as the base salary.

Frequently Asked Questions

What is the meaning of dearness allowance?

The Dearness Allowance is a component of the salary, which is a percentage of the basic salary. This was brought into place to offset the impact of inflation.

What happens when DA reaches 50%?

At the 50% mark, there is a change to the salary structure, as all components linked to DA increase accordingly. This includes HRA, hostel subsidy, TA on transfer, Gratuity Ceiling, Dress Allowance, Daily Allowance, and others.

Is dearness allowance applicable to private sector employees?

No, only the public sector employees are eligible for getting the dearness allowance from the government.

Are NRI pensioners eligible for DA?

In case a pensioner lives and works abroad, then the Government of India does not pay a dearness allowance to that individual.

What is HRA and DA in salary?

HRA is House Rent Allowance, whereas DA is Dearness Allowance. Both are different components of a salary provided by an employer.

How is DA calculated online?

You can use the dearness allowance calculators available online to quickly and effectively calculate DA.

Is house rent part of DA?

No, house rent is different and does not come under DA. House rent comes under the House Rent Allowance (HRA) component of your salary.

Is dearness allowance taxable?

Yes, dearness allowance is completely taxable.

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