Dearness Allowance

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 impact. Although the government has taken various measures to control inflation, there has only been partial success with the prices moving in accordance with the market.


Since the impact of inflation is directly related to the employee’s location, the Dearness Allowance is also calculated accordingly. Therefore, it varies from one employee to another depending on different sectors such as rural, semi-urban and urban sectors. You can use the various DA calculators online to calculate your dearness allowance.

Calculation of Dearness Allowance

Dearness allowance is revised twice in a year, once in the month of 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


Where, AICPI stands for All-India Consumer Price Index

Types of Dearness Allowance

Dearness Allowance are of two types, they are -

  • Variable Dearness Allowance

Employees employed under the central government receive the 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)

  2. Base Index 

  3. The Variable DA amount fixed by the central government 

  • Industrial Dearness Allowance

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

Treatment of Dearness Allowance under Income Tax

The Dearness Allowance is taxable under the Income Tax Act. The DA for salaried employees is entirely taxable. . In case the employee has an accommodation that is unfurnished and rent-free, 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 IT rules state that DA has to be separately mentioned in the ITR when being filed.

Role of Pay Commission in Dearness Allowance Calculation

The pay commission makes changes to and evaluates the public sector employees’ salaries based on the several sections that make the pay slip of an employee. Hence, dearness allowance is considered by the pay commission while making the next pay commission report.


It is the pay commission’s role to make sure that they cover all the factors of salary calculation. This includes updating the factor of multiplication and periodic reviewing for the calculation of dearness allowance.

Difference Between DA and HRA

Dearness Allowance (DA) and House Rent Allowance (HRA) are two different portions of a salary slip and there are some major differences between the two. They are:

Dearness Allowance (DA)

House Rent Allowance (HRA)

It is paid to public sector and central government employees only

It is available to both private and public sector employees

It is a fixed percentage of the salary

It is based on basic salary

It is entirely taxable and has no exemptions

It is partially taxable and the employee can claim some exemptions under the IT 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 continuously since 2006. This has happened a lot over the last few years to compensate for the rising inflation. The figure now stands at 50% of the basic salary. 


It is a practice to combine dearness allowance with basic salary once the DA percentage crosses the 50% mark. It is a great salary booster for employees as all the other parts of the salary is calculated keeping basic salary as the base.

DA Allowance as Per Latest Revision

The Central Government announced that there will be a hike in DA for all its employees according to the recommendations of the Pay Commission from July 2021. The Union Cabinet approved another 3% dearness allowance increase. Since this decision, all of its employees started getting 31% dearness allowance from July 2021. In January 2022, there was another 3% increase in DA resulting in a 34% dearness allowance now.

Frequently Asked Questions

The meaning of Dearness allowance is it’s a component of the salary which is a percentage of the basic salary. This was brought into place to hedge the impact of inflation.

When dearness allowance reaches the 50% mark, it is merged with the basic salary. This means that the employees would be getting a major salary hike if that happens.

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


  • 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.

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

HRA is House Rent Allowance whereas DA is Dearness Allowance. Both are different components of a salary.

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

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