Dearness Allowance hiked for central govt staff – Everything you need to know

The government has hiked Dearness Allowance (DA) to be paid to the central employees and pensioners, with retrospective effect from January 1, by 3% to 34 %. The DA will be calculated on the basis of the All India Consumer Price Index for the months of 2021. “This increase is in accordance with the accepted formula, which is based on the recommendations of the 7th Central Pay Commission,” the government said in a press release.

Here is everything you need to know about Dearness Allowance:

What is Dearness Allowance?

Dearness Allowance, or simply DA, is one of the components of monthly salary paid to public sector employees in order to compensate them for the increase in the cost of living due to inflation.

Revised twice a year

This percentage is increased twice a year – in January and July. Since the core function of the DA is to reduce the impact of inflation, its increase is determined by the CPI. CPI is the measure of inflation that calculates the prices of goods relative to their prices in the past.

DA varies for each employee

It must be noted that the rise in DA is not the same for all government employees. It varies greatly on the job location, the job department and the level of seniority among other things.

DA is a taxable component

Dearness Allowance is completely taxable for individuals who are salaried employees.

Dearness Allowance for Pensioners

Dearness allowance paid to pensioners of the central government is called Dearness Relief DR. The percentage of DR is decided in the same way as that of DA.

How does the government calculate DA?

As per online marketplace BankBazaar, here is the formula for calculating DA:

For central government employees:

Dearness Allowance % = ((Average of AICPI (Base Year 2016=100) for the past 12 months -115.76)/115.76) *100

For public sector (central government) employees:

Dearness Allowance % = ((Average of AICPI (Base Year 2016=100) for the past 3 months -126.33)/126.33) *100

* AICPI stands for All India Consumer Price Index.

The DA for central government employees was earlier calculated based on the consumer price index with the base year 2001. The government replaced it with a new consumer price index with the base year 2016 to calculate the DA from September 2020.