Under the 7th Pay Commission, the Union Cabinet boosted the Dearness Allowance (DA) and Dearness Relief (DR) of Central government workers and retirees by 4%. The 4% increase raises the DA to 46% from 42%.
The decision comes amid the holiday season and is seen as an early ‘Diwali present’ for 48.67 lakh central government employees and 67.95 lakh pensioners. The total annual impact of Dearness Allowance and Dearness Relief on the exchequer will be 12,857 crore.
The dearness allowance will be increased from July 1, 2023, with the DA rate set by the All
India Consumer Price Index known as (AICPI) from January to June.
Dearness benefit (DA) is a government-provided cost-of-living adjustment benefit given to public sector employees and retirees. Dearness Relief (DR) is a comparable program that helps central government retirees.
The government revises the DA/DR rate every six months to compensate for the decreasing buying power of monthly salaries and pension funds due to inflation.
How is DA determined?
It’s computed as a percentage of your base wage.
Employees of the Central Government: Dearness Allowance % = ((Average of AICPI (Base Year 2001=100) for the previous 12 months -115.76)/115.76) *100
All India Consumer Price Index is commonly known as AICPI.
This formula is used for personnel in the public sector (central government):
Dearness Allowance Percentage = ((Average of AICPI (Base Year 2016=100) for the previous three months -126.33)/126.33) *100
Taxability
Employees’ DA is completely taxed together with their wage. According to the Income Tax Act, tax due for DA and salary must be mentioned in the filed return.
