To compensate against inflation, the Cabinet approved an increase of 5% in dearness allowance (DA) paid to the central government employees, effective from 1 July 2019. DA or Dearness Relief is paid to central government employees or pensioners to adjust the cost of living and to protect their basic pay or pension from erosion in the real value. It is revised twice a year every year on the 1 January and 1 July.
This increase is in accordance with the accepted formula, which is based on the recommendations of the 7th Central Pay Commission. Increase in DA will benefit about 49.93 lakh central government employees and 65.26 lakh pensioners. DA varies for the employees based on the location or city they are working in, because cost of living is different in rural, urban, and semi-urban areas. DA is fully taxable in the hands of the employees.
Salary structure of both government as well as private sector employees include several components like basic pay, house rent allowance (HRA), dearness allowance and so on. Typically, basic pay and HRA is part of the salary, but paying dearness allowance to an employee depends on the discretion of the employer. But even those who get a dearness allowance in the private sector, this announcement by the government will not have a bearing because it doesn't apply to the private sector. Also, public sector organisations are bound to give dearness allowance in accordance to government’s policy, however private sector companies are not bound to do so. A private sector employee will have to wait for annual performance assessments and increments for any increase in pay structure.