What is dearness allowance, is there tax on it? Here is the answer to all your questions

Dearness Allowance is one of the most closely watched parts of the salary and pension of government employees, especially whenever salary hikes or dearness adjustments are discussed. Where lakhs of central government employees and pensioners get Dearness Allowance (DA) to compensate for the rising cost of living. At the same time, many taxpayers are not clear how it is credited, how it is taxed and how it has to be shown in their income tax return. About 50 lakh central government employees, including defense personnel and retired people, and 65 lakh retired central government pensioners get the benefit of Dearness Allowance (DA) increase in different amounts at 18 levels. Let us tell you about some important facts related to this.

FAQs related to DA

1. What is dearness allowance?- Dearness Allowance (DA) is a part of the salary of central and public sector employees, the purpose of which is to provide relief from rising inflation. According to the All India Consumer Price Index (AICPI), it is revised every six months based on inflation data in March and early October, after which it is implemented from January and July.
2. How is Dearness Allowance (DA) calculated?- The increase is calculated on the basis of 12 month average as per the formula decided by AICPI under the 7th Pay Commission.
3. How much has increased in the last few DAs?- Under the 7th CPC, there has been an increase of 10 times since 2021, of which the highest increase was 11% in July 2021. The previous two increases were 2% and 3% for January and July 2025. The latest announcement was in April, when DA was increased by 2%, making it 60% of the basic pay.
4. Is dearness allowance included in your salary?- Yes, dearness allowance is a part of the employee’s company cost (CTC) and is added to the monthly salary of central government employees.
5. Is income tax applicable on DA?- Yes, according to your tax slab, Dearness Allowance (DA) is completely covered under income tax.
6. Is it necessary to give DA information in ITR? Yes, according to Income Tax rules, it is necessary to declare the Dearness Allowance (DA) portion separately in ITR.
7. Why is Dearness Allowance (DA) important?- According to government data, retail inflation increased to 3.48% in April 2026, while food inflation reached 4.20%. The rising prices of food items (milk, vegetables and other essential items), electricity and fuel (CNG, diesel and petrol) are putting pressure on the budget of families. In such a situation, the increase in dearness allowance can provide relief to the middle class, low income families and those who travel daily.
8. Can the government increase dearness allowance again in July?- No official statement has come yet, but amid inflationary pressure, high global crude oil prices, increase in transport costs and unstable prices of food items, the discussion regarding DA increase has intensified. Employees and pensioners are expecting further increase in DA in July this year.
9. Why is Pay Commission constituted every 10 years?- Pay Commission is constituted every 10 years to revise the allowances, salaries and pensions of employees. The commission’s committee takes suggestions from employee unions, labor groups, ministries, pension bodies and other concerned parties, analyzes the data and then takes decisions related to salaries, pensions and allowances.
10. What is the role of Pay Commission?- Formally known as the Central Pay Commission (CPC), this commission is responsible for taking decisions related to salaries, pensions, retirement benefits and government expenditure. This is the latest Central Pay Commission constituted after independence.
11. Who are included in the Eighth Pay Commission?- Prime Minister Narendra Modi constituted the Eighth Pay Commission in January 2025 and its Terms of Reference (ToR) were issued in November 2025. It is being headed by former Supreme Court judge Ranjana Prakash Desai. Other members include Pulak Ghosh, professor in the finance department and member of the Prime Minister’s Economic Advisory Council, while former IAS officer Pankaj Jain is playing the role of member-secretary.

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