Dearness Allowance: From DA hikes to pay arrears and other key announcements — Check latest updates, FAQ answers here

Dearness Allowance (DA) is a percentage of employees' and pensioners' basic salaries that aims to mitigate the impact of rising living costs for central government employees and retired pensioners, providing a buffer against inflationary pressures.

Updated biannually using data from the All-India Consumer Price Index (AICPI), new announcements are made in March and October, with rollouts in January and July. The last hike was announced in April, when the Finance Ministry increased DA from 58% to 60% of basic salary, effective from 1 January 2026.

About 50 lakh central government employees and around 65 lakh retired central government pensioners, including defence personnel and retirees, will benefit from an increase in DA and Dearness Relief (DR) components.

DA hikes — Latest updates

• Last month, West Bengal hiked DA and DR for state government employees and pensioners by 20%, with effect from October. This takes the components to 38% of basic salary.
• The Indian Banks' Association (IBA) announced revised DA and DR for workmen and officer employees across levels for the months of May, June and July 2026. It hiked basic salaries between ₹48,000 to ₹1,17,000 and DA from ₹435 to ₹1,050.
• This was followed by a 2% DA and DR hike announced by the Indian Railways.
• In May, Assam has approved a 2-percentage-point increase in DA and DR, up from 58% to 60% with immediate effect, benefitting more than 8 lakh serving state government employees, pensioners.

• Arunachal Pradesh hiked DA and DR for its employees by 2%, effective from 1 January 2026. DA in basic pay is now up to 60% from 58% and will be implemented for 69,248 regular employees.
• Tamil Nadu hiked DA for state government employees, pensioners and teachers by 2%, effective from 1 January 2026, taking allocation to 60% of basic salary. The state will bear additional annual expenditure of ₹1,230 crore.
• Bihar also announced that employees and pensioners under the 6th Pay Commission will get a 5-percentage-point hike in DA and DR, i.e. DA will be raised from 257% to 262%, effective from 1 January. For employees under the 5th CPC, DA has been increased by 9 percentage points, from 474%to 483%, and for those under the 7th CPC, it has been raised from 58% to 60%.

• Odisha announced a 2% increase in DA for state government employees and pensioners, up from 58% to 60%, effective from 1 January, as per a statement from the Chief Minister's Office (CMO). Around 8.5 lakh state government employees and pensioners are expected to benefit from the announcement.
• Uttar Pradesh on 21 May, announced a 2% hike in DA and DR for state government employees and pensioners, effective from 1 January — up to 60% of basic pay from 58% and will benefit around 16 lakh Uttar Pradesh government employees, teachers, and pensioners.
• Maharashtra approved payment of ₹800 crore DA arrears for state government employees under the 5th, 6th and 7th central pay commissions for November and December 2025 and January 2026. It also approved 2% increase in DR for retired All India Services officers.

Dearness allowance: Key FAQs answered

Can we expect a second DA hike this year? Employees and pensioners are expecting another hike announcement this year.

How is the DA hike calculated? DA hikes are calculated based on the AICPI's 12-month average, using the method prescribed by the 7th Pay Commission. The formula used is as follows:

• For Central Government Employees: DA percentage = [(Average of AICPI (Base Year 2001 = 100) for the last 12 months – 261.42) / 261.42] x 100
• For Public Sector Employees: DA percentage = [(Average of AICPI (Base Year 2001 = 100) for the last three months – 126.33) / 126.33] x 100

Why is DA hike important? DA is a component of the salary break-up for central and public sector employees, aimed at mitigating the rising cost of living. Notably, the basic salary also determines other components of compensation, such as provident fund contributions, pension, allowances, gratuity, and more. Thus, higher DA, especially given DA merger demands, could lead to a substantial and automatic increase in overall pay and, consequently, in the other dependent allocations.

What are the types of Dearness Allowance? For calculation purposes, DA is separated into two categories: industrial and variable DA.

• Industrial DA: This is reviewed quarterly for central government public sector employees based on the Consumer Price Index (CPI).
• Variable DA: This applies to all central government employees and is revised twice a year, based on the CPI, to offset inflation.

What is DA merger? The 7th CPC, which revised DA calculation formula also stipulated that DA be merged with basic salary if it exceeds 50%, according to a Bank Bazaar report. As of the last DA hike, the component is now 60% of basic pay and may rise further if another hike is announced in July. Expectations are of a 3-4% hike in the month. Multiple employee unions and representative groups have demanded that the Centre make an official announcement on DA merger — given that DA now exceeds 50% of basic salary. Till now, the Centre has clarified that no such proposal is currently under consideration.

Is Dearness Allowance part of CTC? DA is part of an employee's cost-to-company (CTC) and is credited to the monthly salary of central government employees. As per the ministry, payments on account of DA involving fractions of 50 paise or more may be rounded off to the next higher rupee, and fractions of less than 50 paise may be ignored.

Is DA subject to income tax? DA for salaried employees is subject to income tax in its entirety. Income-Tax Rules mandate that the DA component is stated separately in a taxpayer's I-T returns (ITR).

When is the 8th Pay Commission decision expected? As per the usual timeline, the CPC is expected to submit its final recommendations around 18 months after its constitution, which means that the earliest we can expect an announcement is February or April 2027.