7th Pay Commission DA Hike: The central government is likely to make a significant revision in dearness allowance this week, on the occasion of the Holi festival. DA allowance is a key component of government employees’ and pensioners’ salaries. As per reports, this time, the government could hike DA but at the lowest level in seven years, by a staggering 2%. Currently, DA is at around 53%.

DA Hike:

The DA rate is calculated using the AICPI-IW data released by the Labour Bureau in Shimla. The latest figures indicate a 0.8% decline in the index, dropping to 143.7 in December 2024. Given this slowdown in CPI inflation for industrial workers, analysts and employee representatives anticipate a 2% increase in DA, as per Angel One report.

Angel One reported that Rupak Sarkar, president of the Confederation of Central Government Employees and Workers believes that DA could be increased by 2%, as per their calculations. Also, Shiv Gopal Mishra, secretary of the NC-JCM (Staff Side) is predicting a 2% surge in DA.

Formula To Calculate DA:

As per the ClearTax report, the formula to calculate the dearness allowance was changed in 2006 by the Government. Presently, DA is calculated as per the following formula:

For Central Government Employees:

DA% = [(Average of AICPI (Base Year 2001 = 100) for the last 12 months – 115.76)/115.76] x 100

For Public Sector Employees

DA% = [(Average of AICPI (Base Year 2001 = 100) for the last 3 months – 126.33)/126.33] x 100

Lowest DA hike in 7 years:

Since the 7th Pay Commission came into effect, the government has hiked DA either by 3% or 4%. The only exception was during the COVID-19 pandemic, when the government halted any changes in dearness allowance for a period of 18 months, from January 2020 to June 2021.

But after that, they continued the tradition of hiking DA twice every year. DA is revised once in March for a half-yearly period of January to June every year, while the second revision is announced between October to November for the second half-year from July to December in that year.

The last hike in DA was announced in October last year to the tune of 3%. The upcoming revision in DA would be the first for H1 of 2025.

However, if the government hiked DA by merely 2%, then it will be the lowest since July 2018. The last time DA was hiked by 2% was in July-December 2018 duration.

Calculate Dearness Allowance In Your Salary:

If DA is hiked by 2%, the new dearness allowance for the January to June 2025 period would be 55% compared to the current 53%. In January 2024, the dearness allowance was hiked by 4% to 50%.

Let’s say, at the minimum basic pay of Rs 18,000 for level 1 employees under 7th CPC, at a 55% rate, the dearness allowance will come to around Rs 9,900. At 53%, the dearness allowance was at Rs 9540. Hence, the DA will rise by Rs 360 (Rs 9,900 – Rs 9,540).

The maximum pay is Rs 56,900 for level 1 employees, and at 55%, the DA would be around Rs 31,295, while at 53%, the DA was at Rs 30,157. The surge would be Rs 1,138 (Rs 31,295 – Rs 30,157).

Is Dearness Allowance Fully Taxable?

As per Income Tax guidelines, the dearness allowance is fully taxable.

If the employee has been provided with an unfurnished rent-free accommodation, it becomes that part of the salary up to which it forms the retirement benefit salary of the employee, provided that all other pre-conditions are met. The Income Tax rules in India require the dearness allowance component to be mentioned separately in the returns that have been filed, ClearTax report said.

First DA Hike After 8th Pay Commission Announcement:

This upcoming DA hike this week or later in March will be the first since the time the PM Modi-led government approved the 8th Pay Commission which is expected to come into effect from next year.

In India, pay commissions have taken effect each decade since its independence. Every 10 years, a committee is set up to review and provide recommendations on the work and pay structure of all the civil and defence division employees under the ambit of the Government of India. The pay commission is meant to improve the living cost of employees and pensioners, and beat inflation.

The government approved implementation of 8th Pay Commission on January 16, 2025. The latest 7th Pay Commission came into effect on January 1, 2016, where about a 23.55% increase was levied on pay and allowances. Hence, a decade later from the 7th Pay Commission, the 8th CPC is expected to be implemented on January 1, 2026.