7th Pay Commission: Good News! Govt May Hike DA To 45%; How To Calculate Dearness Allowance On Salaries

7th Pay Commission: Good News for central government employees and pensioners as many reports are indicating that the Centre may hike dearness allowance by 3% to 45% from the current 42% on their basic pay. DA is formulated based on the latest Consumer Price Index for Industrial Workers (CPI-IW) which is declared by the Ministry of Statistics and Programme Implementation every month.

All India Railwaymen Federation General Secretary Shiva Gopal Mishra told PTI that "the CPI-IW for June 2023 was released on July 31, 2023. We are demanding a four percentage point hike in dearness allowance. But the dearness allowance hike works out to be a little over three percentage points. The government does not factor in hiking DA beyond the decimal point. Thus DA is likely to be increased by three percentage points to 45 per cent".

Further, Mishra told the news agency that the expenditure department of the Finance Ministry will formulate a proposal to hike DA along with its revenue implication and will put up the proposal before the Union Cabinet for approval.

The hike in DA is expected to take effect from July 1, 2023.

DA was last hiked on March 24, 2023, by 4% to 42% with effect from January 1, 2023. Before this, DA stood at 38%.

Currently, more than one crore central government employees and pensioners are receiving a 42% dearness allowance.

In general terms, the government pays dearness allowance to its employees and pensioners to offset the impact of stubbornly high inflation. However, it needs to be noted that the impact of inflation varies depending on the location of an employee. Hence, the calculation of dearness allowance is different among employees based on their pay matrix and presence in the urban, semi-urban or rural sector. Also, DA is fully taxable for salaried employees.

Here's how the hike in DA to 45% will be beneficial to employees.

Let's suppose, the basic salary is Rs 18,000 per month under the Level 1 (1800 GP) pay matrix. Then DA of an employee would be Rs 8,100 per month (45% X Rs 18,000/100) --- compared to the DA of Rs 7,560 at a 42% rate.

Hence, at 45% DA, central government employees' dearness allowance will rise by Rs 540 on basic pay compared to the previous rate.

Taking another pay matrix, for example, on the minimum salary of Rs 25,500 under the Level 4 (2400 GP) payscale, the 45% DA hike will work out to Rs 11,475 --- rising by Rs 765 from the DA of Rs 10,710 at 42% rate.

Dearness Allowance Formula:

For central government employees, the formula for calculating DA as a percentage is --- [(Average of AICPI (Base Year 2001 = 100) for the last 12 months - 115.76)/115.76] x 100

In the case of public sector employees, the DA formula is -- [(Average of AICPI (Base Year 2001 = 100) for the last 3 months - 126.33)/126.33] x 100

DA is revised twice a year on a periodical basis.

Last, dearness allowance is fully taxable for salaried employees. The Income Tax Department has made it mandatory to declare tax liability for DA in the income tax returns filing.