Dearness allowance

Dearness allowance is the cost-of-living component paid to central government employees on top of basic pay, revised twice a year to offset retail inflation, and expressed as a percentage of basic pay under the 7th Central Pay Commission structure. It stands at 60% of basic pay with effect from 1 January 2026, notified by the Department of Expenditure through Office Memorandum No. 1/1(i)/2026-E.II(B) dated 22 April 2026. The parallel component for pensioners is dearness relief, paid at the same rate.

Dearness allowance is not a discretionary bonus. It is a formula-driven adjustment tied to the All-India Consumer Price Index for Industrial Workers, designed to protect the real value of pay between pay commissions. Because it is recomputed every six months, it is the most frequently revised element of a central government salary. The revision to 60% changed the take-home pay of about 50.46 lakh central government employees and, through dearness relief, the pension of 68.27 lakh pensioners at once, at a cost to the exchequer of Rs. 6,791.24 crore a year, per the Cabinet decision of 18 April 2026.

This article sets out the current rate and what it means in rupees, who the Office Memorandum reaches and who draws a different rate, the exact method by which the rate is computed from the AICPI-IW, the twice-yearly revision cycle and the announcement lag that produces arrears, how those arrears are worked out and taxed, the revision history since the 7th CPC took effect, the way a DA rate crossing 50% triggers higher house rent allowance and other allowances, what is payable during leave, suspension and deputation, the tax treatment of DA, its effect on National Pension System contributions, and its role as the neutralisation base for the 8th Central Pay Commission. Every rate is cited to the governing Office Memorandum. The 7th CPC salary calculator applies the current 60% rate to a specific pay level.

The current rate

Dearness allowance for central government employees is 60% of basic pay with effect from 1 January 2026. The Department of Expenditure notified it through Office Memorandum No. 1/1(i)/2026-E.II(B) dated 22 April 2026, which raised the rate from 58% and referred to the previous order, No. 1/4(i)/2025-E.II(B) dated 6 October 2025.

The rate applies to the basic pay drawn from the pay matrix, and to nothing else: DA is computed on basic pay alone, not on basic pay plus other allowances. A Level 6 employee at the entry cell of Rs. 35,400 draws dearness allowance of Rs. 21,240 a month at 60% (Rs. 35,400 multiplied by 0.60). An employee at the minimum pay of Rs. 18,000 draws Rs. 10,800. The DA figure moves in step with basic pay, so the same 60% produces a larger rupee amount higher up the matrix.

Coverage: who draws dearness allowance and who does not

Office Memorandum No. 1/1(i)/2026-E.II(B) dated 22 April 2026 reaches central government civilian employees drawing pay in a level of the 7th CPC pay matrix, and nobody else. It is addressed to all ministries and departments of the Government of India. Paragraph 2 confines “basic pay” to the pay drawn in the prescribed level and excludes special pay and every other type of pay. Paragraph 3 keeps dearness allowance a distinct element of remuneration that is not pay within the meaning of FR 9(21).

Three groups are covered by parallel orders rather than by this one. Paragraph 5 extends the order to civilian employees paid from the Defence Services Estimates, and states that the Ministry of Defence and the Ministry of Railways issue separate orders for Armed Forces personnel and for railway employees. Paragraph 6 records that the order was issued in consultation with the Comptroller and Auditor General under Article 148(5) of the Constitution so far as the Indian Audit and Accounts Department is concerned. Employees still on 6th CPC and 5th CPC scales are covered by two companion orders of the same date, No. 1/1(ii)/2026-E.II(B) and No. 1/1(iii)/2026-E.II(B).

Employees of central autonomous bodies and statutory bodies are not central government employees, so a revision does not reach them automatically. Such a body extends it under Department of Expenditure Office Memorandum F. No. 1/2/2016-E-III(A) dated 26 July 2017, whose paragraph 3 permits revision only of those allowances that follow the central government pattern exactly.

Central public sector enterprises are outside the system entirely. Their staff draw Industrial Dearness Allowance, fixed by the Department of Public Enterprises on the same AICPI-IW but revised quarterly, on 1 January, 1 April, 1 July and 1 October, against a link point specific to each pay-revision vintage. Office Memorandum No. W-02/0037/2025-DPE(WC)/FTS-14505 dated 17 July 2026 set the rates effective 1 July 2026 at 55.7% on the 2017 scales, 241.7% on the 2007 scales and 476.9% on the 1997 scales, against 54.1%, 238.3% and 471.2% for the quarter beginning 1 April 2026. The percentages are not comparable with the central government figure, because the link points differ. The Industrial Dearness Allowance rate moves every quarter, four times as often as the central rate.

State government employees draw whatever rate their own state finance department notifies. Most states follow the central rate, but they do so by their own orders and often from a later date, and some notify a different percentage altogether.

How the rate is computed

The dearness allowance percentage is the 12-month average of the AICPI-IW minus the base index of 261.42, divided by 261.42, multiplied by 100, and stated as a whole number. The index is the All-India Consumer Price Index for Industrial Workers, compiled monthly by the Labour Bureau on a base of 2016 equal to 100. The base of 261.42 is the average index for 2015, the point at which dearness allowance was reset to zero on 1 January 2016 under the 7th Central Pay Commission.

The rate is therefore read off a price index rather than settled by negotiation. It moves only when the 12-month average moves.

Because the published series was rebased from 2001 equal to 100 to 2016 equal to 100, the current monthly figures are converted with a linking factor of 2.88 before they enter this formula. The mechanics matter for understanding how the number is derived, but the operative figure is always the percentage stated in the Office Memorandum: the orders publish the resulting rate, not the arithmetic. The result is rounded to a whole number.

Two features follow from the method. First, the rate can only move when the 12-month average moves, so a single high or low monthly reading does not swing it; the averaging smooths the series. Second, because the rate tracks retail inflation for industrial workers rather than a discretionary target, its direction ahead of any date is a function of the index, not of policy.

The revision cycle and the announcement lag

Dearness allowance is revised twice a year, effective 1 January and 1 July, and the order always issues months after the effective date. The 1 January revision uses the 12-month average of the index for the year ending the previous December, and the 1 July revision uses the average for the year ending the previous June.

The lag exists because the index data for the reference period must be published and the Cabinet must approve the revision before the Department of Expenditure issues the Office Memorandum. In practice the January revision is notified around March or April, and the July revision around September or October. The 60% rate effective 1 January 2026 was approved by the Cabinet on 18 April 2026 and notified on 22 April 2026, a lag of nearly four months.

For the revision due on 1 July 2026 the index data is complete and the computation gives 63%, but the order has not issued. The Labour Bureau published the June 2026 index at 151.9 in its press release F. No. 5/1/2021-CPI dated 31 July 2026, which completes the 12 months to June 2026 at an average of 428.11 on the 2001-equivalent scale: 428.11 minus 261.42, divided by 261.42, multiplied by 100, is 63.76%. Only the Cabinet decision and the Office Memorandum remain, and as on 18 August 2026 the rate in force is still 60%.

Arrears: computation and tax year

Arrears of dearness allowance are the difference between the new rate and the old rate applied to the basic pay actually drawn in each month from the effective date to the month the order is implemented. There is no separate rule or standing instruction on the computation; the only rounding provision is paragraph 4 of the Office Memorandum itself, which directs that fractions of 50 paise and above be rounded to the next higher rupee and fractions below 50 paise be ignored.

The revision to 60% shows the shape of it. The order of 22 April 2026 took effect from 1 January 2026, so three months of arrears, for January, February and March 2026, were released with the April 2026 salary. An employee at Level 7 entry cell, basic pay Rs. 44,900, gained 2% of basic pay for each of those months, Rs. 898 a month, and drew Rs. 2,694 as arrears. The DA arrears calculator works the same difference across the intervening months for any level and stage.

Arrears are taxed in the year of receipt, not the year they relate to, because Section 15 of the Income-tax Act, 1961 brings salary to charge on a due or receipt basis and arrears are assessed when paid. Where the lump sum pushes the total income into a higher slab than it would otherwise have reached, relief is available under Section 89 of the Income-tax Act, 1961, computed under Rule 21A of the Income-tax Rules, 1962 and claimed in Form 10E under Rule 21AA. Form 10E must be filed online and before the return; the Income Tax Department’s own instruction is that relief claimed without it will not be allowed. The relief operates against tax computed rather than as a deduction or an exemption, so it is not among the items withdrawn by Section 115BAC and remains available under the new tax regime.

Revision history since the 7th CPC

Dearness allowance was reset to zero on 1 January 2016 when the 7th Central Pay Commission took effect, because the 125% DA then in force had been merged into revised pay through the 2.57 fitment factor. It has been revised every six months since, apart from the freeze during the pandemic.

The table below lists the revisions from 1 January 2023, each cited to its Office Memorandum. The percentages for the earlier 7th CPC years are given in the prose that follows.

In the earlier years the rate climbed from zero in stages: 2% from 1 July 2016, rising through 7%, 12%, and 17% by 1 July 2019. It was then frozen at 17% for three consecutive instalments, from 1 January 2020 to 30 June 2021, by Office Memorandum No. 1/1/2020-E.II(B) dated 23 April 2020, with the withheld instalments not paid in cash. Restoration came in two orders that share one effective date. Office Memorandum No. 1/1/2020-E.II(B) dated 20 July 2021 raised the rate from 17% to 28% with effect from 1 July 2021, subsuming the three frozen instalments prospectively, and Office Memorandum No. 1/4/2021-E.II(B) dated 25 October 2021 then revised it to 31% from the same date. The rate reached 34% from 1 January 2022 (No. 1/2/2022-E-II(B), dated 31 March 2022) and 38% from 1 July 2022 (No. 1/3/2022-E.II(B), dated 3 October 2022), before the 42% shown in the table. The 28% figure matters beyond the arithmetic: it is the step that crossed the 25% threshold in the house rent allowance order.

The 50% trigger

House rent allowance rose to 30%, 20% and 10% of basic pay on 1 January 2024, the date dearness allowance crossed 50%, under the pre-authorised escalation in Office Memorandum No. 2/5/2017-E.II(B) dated 7 July 2017. No separate rate order was required. The 7th Central Pay Commission built the same kind of escalation clause into several allowances, keyed to the level of dearness allowance, and the house rent allowance clause is the most consequential of them.

House rent allowance began under the 7th CPC at 24%, 16% and 8% of basic pay for X, Y and Z class cities, the city classification that sets the rate. Paragraph 3 of the 2017 order provided that the rates “will be revised to 27% 18% and 9% for X, Y and Z class cities respectively when Dearness Allowance (DA) crosses 25% and further revised to 30%, 20% and 10% when DA crosses 50%”. Dearness allowance was never notified at exactly 25%: it went from the frozen 17% to 28% with effect from 1 July 2021, so the 27%, 18% and 9% rates took effect from that date by operation of the 2017 order alone. The same mechanism produced the 30%, 20% and 10% rates in force since 1 January 2024.

Other allowances also step up by 25% each time dearness allowance crosses 50%, a mechanism the 7th CPC applied across a range of DA-linked allowances. The confirmed cases include the children education allowance and hostel subsidy, and the special allowance for child care for women with disabilities. Because these increases are automatic on the DA milestone rather than separately negotiated, they took effect from 1 January 2024 alongside the house rent allowance revision.

This 25% allowance escalation is not a merger of dearness allowance into pay. Under the 5th CPC, crossing 50% led to dearness pay, the merger of half the dearness allowance into basic pay in 2004, but the 7th CPC did not carry that practice forward, so the 50% milestone now raises certain allowances without turning any part of dearness allowance into pay.

Payment during leave, suspension and deputation

Dearness allowance follows the leave salary actually drawn, so it is paid in full on earned leave, halved on half pay leave, and not paid at all on extraordinary leave. The CCS (Leave) Rules, 1972 prescribe no separate rule for the allowance: Rule 40 fixes the leave salary, and dearness allowance rides on whatever that rule produces.

Two provisions in the same rules confirm that dearness allowance, and dearness allowance alone, rides on leave salary. Rule 45(6)(a) states that on departmental leave “no allowance, other than Dearness Allowance, shall be admissible on the leave salary”. Rule 51(2) allows, during study leave, only house rent allowance under sub-rule (1) “and Dearness Allowance, if admissible”. Rule 39 computes the cash equivalent on leave encashment as leave salary plus dearness allowance admissible at the rate in force, and excludes house rent allowance.

Under suspension the allowance is paid on the subsistence allowance, not on pre-suspension pay. FR 53(1)(ii)(a) directs that a government servant under suspension draws a subsistence allowance equal to the leave salary payable on half pay, and “in addition, dearness allowance, if admissible, on the basis of such leave salary”. The provisos allow the subsistence allowance to be increased or reduced by up to 50% after three months of review, and dearness allowance moves with the varied amount, because it is computed on the subsistence allowance as it stands.

On deputation the rate depends on the pay option exercised. Department of Personnel and Training Office Memorandum No. 2/29/91-Estt.(Pay II) dated 5 January 1994 provides that the officer draws dearness allowance at the rates prevailing in the borrowing organisation or in the lending organisation, according to whether the option was for the time scale of the ex-cadre post or for parent-cadre pay plus deputation (duty) allowance. Where the two organisations follow dissimilar pay and dearness allowance patterns, the same order fixes pay by equating pay plus dearness allowance in the parent post against total emoluments in the borrowing organisation.

Dearness relief for pensioners

Dearness relief is 60% of basic pension from 1 January 2026, the same percentage and the same effective date as dearness allowance, but it is issued by the Department of Pension and Pensioners’ Welfare rather than the Department of Expenditure. It is paid on basic pension rather than on basic pay, to pensioners and family pensioners on the central government pension, including those who retired under the older defined-benefit rules.

Pensioners from earlier pay commissions draw dearness relief at their own, higher percentages, calculated against their pre-revision pension, so a single date can see different dearness-relief rates for 5th, 6th and 7th CPC pensioners. Like dearness allowance, dearness relief is a distinct element that is not merged into the pension.

Three terms are routinely confused. The table separates them on payer, base and current status.

Sources for the table: Department of Expenditure Office Memorandum No. 1/1(i)/2026-E.II(B) dated 22 April 2026 for the first two columns, and the 2004 merger of 50% dearness allowance as dearness pay under the 5th CPC recommendation for the third.

Tax treatment

Dearness allowance is fully taxable as salary at the whole of the 60% currently drawn, with no exemption for government employees. Section 17 of the Income-tax Act, 1961 includes dearness allowance within the definition of salary, so it is taxed in the employee’s hands as part of salary income and reported in the return. Certain reimbursement-type allowances carry their own exemptions; dearness allowance carries none.

One classification affects other computations rather than the tax on DA itself. Where dearness allowance is reckoned as forming part of pay for retirement benefits, that DA component is counted in the base for computations such as provident fund and the emoluments used for gratuity and pension. This is a service-rules classification; it does not change the fact that dearness allowance is fully taxable while it is drawn. For the wider treatment of salary and pension income, see income tax for government employees.

Effect on pension contributions

Dearness allowance is part of the contribution base under both the National Pension System and the Unified Pension Scheme, so every revision raises the amount flowing into the corpus. The employee contributes 10%, and the government 14%, of basic pay plus dearness allowance under the National Pension System. Under the Unified Pension Scheme, operative from 1 April 2025, the same 10% employee contribution applies on basic pay plus dearness allowance, with the government contributing 18.5%. At 60%, an employee at Level 7 entry cell contributes Rs. 7,184 a month against Rs. 7,094 when the rate was 58%, and the government’s share moves with it.

Origins and the discontinued 50% merger

No provision for merging dearness allowance into basic pay exists under the 7th Central Pay Commission at any DA level, including the 60% in force from 1 January 2026. The merger that staff associations ask for was a 5th CPC practice, discontinued by the 6th CPC and never revived.

Dearness allowance began as a wartime cost-of-living adjustment and became a permanent feature of government pay as inflation persisted after independence. For most of that history it was a flat amount or a slab, not the clean percentage of basic pay it is today; the percentage-of-basic-pay form is a feature of the later pay commissions.

The most consequential change concerned merger. Paragraph 105.11 of the 5th Central Pay Commission report recommended that dearness allowance be converted into dearness pay each time the consumer price index rose 50% over the base index used by the last pay commission, so that the merged portion would count for allowances and retirement benefits. The government acted on it once, merging dearness allowance equal to 50% of basic pay as dearness pay from 1 April 2004 under Office Memorandum F. No. 105/1/2004-IC dated 1 March 2004. Paragraph 4.1.18 of the 6th Central Pay Commission report then recommended against merger at any stage, on the ground that the 2004 conversion had not been paired with the revision of the 306.33 base index that should have accompanied it, and the 7th CPC framework retained no automatic merger at any DA level. This is why the current 60% dearness allowance sits entirely outside basic pay, and why the recurring staff-side demand for a fresh merger is a demand for a policy change rather than the operation of an existing rule. The only merger that will occur is the one-time absorption of accumulated dearness allowance into revised pay when the 8th Central Pay Commission is implemented.

Bearing on the 8th Central Pay Commission

The level of dearness allowance on the eve of a pay commission is the neutralisation base for the next fitment factor, which is why 60% today implies a smaller fitment than the 2.57 of 2016. When the 7th CPC took effect, dearness allowance stood at 125%, which produced a neutralisation multiple of 2.25 that fed into the 2.57 fitment factor. Ahead of the 8th Central Pay Commission, constituted in November 2025, dearness allowance is 60%, a much smaller base, which is why the fitment factors being projected for the 8th CPC cluster below 2.57.

On implementation of a new pay commission, the accumulated dearness allowance is merged into revised basic pay and the DA counter resets to zero, as it did in 2016. That is a one-time event tied to the pay revision, not a standing feature. The government’s position on merging dearness allowance with basic pay before then is settled: the Minister of State for Finance told the Lok Sabha in December 2025 that no proposal to merge dearness allowance with basic pay is under consideration, and the 7th CPC framework, unlike the 5th CPC, carries no automatic merger when DA crosses 50%.

Worked examples

Dearness allowance is basic pay multiplied by the current rate of 60% from 1 January 2026, basic pay being the cell value at the employee’s pay matrix level and stage. At the Level 7 entry cell of Rs. 44,900 the allowance is Rs. 26,940 a month; at the Level 10 entry cell of Rs. 56,100 it is Rs. 33,660; at the minimum pay of Rs. 18,000 it is Rs. 10,800.

The allowance is added to basic pay before house rent allowance and transport allowance are worked out, and transport allowance itself carries dearness allowance on top of its fixed figure. The 7th CPC salary calculator shows the full build-up of gross and take-home pay at a chosen level and city, and the DA arrears calculator works out the arrears from a rate change.

Related Articles

• 8th Pay Commission latest news and status
• Hostel Subsidy
• Allowances for central government employees
• Travelling allowance (TA)
• Interim relief
• CCS (Revised Pay) Rules, 2016
• 7th Central Pay Commission
• 8th Central Pay Commission
• Nursing Allowance
• Risk and Hardship Allowance
• Running Allowance
• Central Pay Commission
• Central government employees in India
• All-India Consumer Price Index for Industrial Workers
• Dearness relief
• Pay matrix
• 7th CPC pay matrix
• Fitment factor
• Minimum pay
• Annual increment
• Pay fixation
• House rent allowance
• City classification for HRA
• Transport allowance
• Children education allowance
• Non-practising allowance
• Military service pay
• Central government pension
• National Pension System
• Unified Pension Scheme
• Old Pension Scheme
• Commutation of pension
• Family pension
• Gratuity for central government employees
• Income tax for government employees
• Standard deduction
• Take-home salary of central government employees
• Department of Expenditure
• Department of Personnel and Training
• 7th CPC salary calculator
• DA arrears calculator
• HRA calculator

External references

• Department of Expenditure, Ministry of Finance
• Department of Pension and Pensioners’ Welfare
• Labour Bureau (AICPI-IW)
• Press Information Bureau
• Department of Personnel and Training
• Department of Public Enterprises
• 7th Central Pay Commission report (doe.gov.in)
• Income Tax Department

References

1. Ministry of Finance, Department of Expenditure, Office Memorandum No. 1/1(i)/2026-E.II(B), dated 22 April 2026, revising dearness allowance to 60% with effect from 1 January 2026.
2. Ministry of Finance, Department of Expenditure, Office Memorandum No. 1/4(i)/2025-E.II(B), dated 6 October 2025, revising dearness allowance to 58% with effect from 1 July 2025.
3. Ministry of Finance, Department of Expenditure, Office Memorandum No. 1/1(1)/2025-E.II(B), dated 2 April 2025, revising dearness allowance to 55% with effect from 1 January 2025.
4. Ministry of Finance, Department of Expenditure, Office Memorandum No. 1/5/2024-E.II(B), dated 21 October 2024, revising dearness allowance to 53% with effect from 1 July 2024.
5. Ministry of Finance, Department of Expenditure, Office Memorandum No. 1/1/2024-E-II(B), dated 12 March 2024, revising dearness allowance to 50% with effect from 1 January 2024.
6. Ministry of Finance, Department of Expenditure, Office Memorandum No. 2/5/2017-E.II(B), dated 7 July 2017, on house rent allowance and its dearness-allowance-linked escalation to 30%, 20%, and 10% when dearness allowance crossed 50% from 1 January 2024.
7. Ministry of Finance, Department of Expenditure, Office Memorandum No. 1/1/2020-E.II(B), dated 23 April 2020, freezing dearness allowance and dearness relief at 17%, and Office Memorandum of the same number dated 20 July 2021, restoring the rate to 28% with effect from 1 July 2021.
8. Ministry of Finance, Department of Expenditure, Office Memorandum No. 1/4/2021-E.II(B), dated 25 October 2021, revising dearness allowance to 31% with effect from 1 July 2021.
9. Ministry of Finance, Department of Expenditure, Office Memorandum F. No. 1/2/2016-E-III(A), dated 26 July 2017, on extension of the 7th CPC allowance decisions to quasi-government organisations, autonomous organisations and statutory bodies.
10. Department of Public Enterprises, Office Memorandum No. W-02/0037/2025-DPE(WC)/FTS-14505, dated 17 July 2026, revising Industrial Dearness Allowance rates for executives and non-unionised supervisors of central public sector enterprises with effect from 1 April 2026.
11. CCS (Leave) Rules, 1972, Rule 40 (leave salary), Rule 39 (cash equivalent on encashment), Rule 43-C(4) (child care leave), Rule 45(6)(a) and Rule 51(2).
12. Fundamental Rule 53(1)(ii)(a), on subsistence allowance and dearness allowance during suspension, as consolidated in Department of Personnel and Training Office Memorandum No. 11012/17/2013-Estt.(A), dated 2 January 2014.
13. Department of Personnel and Training, Office Memorandum No. 2/29/91-Estt.(Pay II), dated 5 January 1994, on transfer on deputation and foreign service and the regulation of pay, deputation (duty) allowance and other terms.
14. Report of the Seventh Central Pay Commission (submitted 19 November 2015), chapter on the method of dearness-allowance neutralisation.
15. Income-tax Act, 1961, Sections 15, 17 and 89; Income-tax Rules, 1962, Rule 21A and Rule 21AA (Form 10E).
16. Press Information Bureau release PRID 2253245, dated 18 April 2026, on the Cabinet approval of the instalment effective 1 January 2026, giving the coverage of 50.46 lakh employees and 68.27 lakh pensioners and an annual cost of Rs. 6,791.24 crore.
17. Labour Bureau press release F. No. 5/1/2021-CPI, dated 31 July 2026, publishing the All-India Consumer Price Index for Industrial Workers for June 2026 at 151.9.
18. Lok Sabha reply of the Minister of State for Finance, December 2025, stating that no proposal to merge dearness allowance with basic pay is under consideration.