Dearness Allowance (DA) is credited as part of an employee's cost-to-company (CTC) and forms a component of monthly salary for central government employees. According to reports from Mint, DA is subject to income tax in its entirety as per the taxpayer's applicable tax slab. The Income-Tax Rules mandate that the DA component must be stated separately in a taxpayer's I-T returns (ITR) filing. Under the new income tax regime, individuals can calculate income tax on lower, concessional income tax rates but forgo claiming approximately 70 tax-exemptions and deductions.
Under the 7th Pay Commission, DA has seen 10 hikes since 2021, with the highest at 11% in July 2021. The past two hikes were 2% and 3% respectively for January and July 2025. The latest announcement in April provided a 2% hike, taking DA to 60% of basic salary. As reported by Mint, DA hikes are calculated based on the 12-month average as per the AICPI method and are revised biannually in early March and October, followed by rollouts in January and July.
According to Mint reports, around 50 lakh central government employees and around 65 lakh retired central government pensioners, including defence personnel and retirees benefit from DA hikes. The allowance is provided only by the central government and not the private sector. While DA affects employee salaries, dearness relief (DR) impacts pension payouts, with the key difference being who the benefit applies to - employees' salary or retirees' pension.
According to government data reported by Mint, retail inflation in April 2026 rose to 3.48%, while food inflation climbed to 4.20%. Rising food prices, power and fuel costs are putting pressure on household budgets. While there is no official word yet on a July DA hike, the debate has gained momentum amid inflationary pressures and elevated global crude oil prices. Employees and pensioners are increasingly looking towards a further hike for relief against steadily rising living expenses.
The 8th Central Pay Commission (CPC) was formed in January 2025 and is chaired by former Supreme Court Justice Ranjana Prakash Desai. As reported by Mint, the commission includes Professor Pulak Ghosh as a Member of the Economic Advisory Council to the Prime Minister and Pankaj Jain, former IAS, as Member-Secretary. The pay commission is constituted every 10 years to revise allowances, pay and pensions, gathering views from employee unions, ministries, and other stakeholders to decide on salary structures and retirement benefits.
