This year, the Union Ministry of Finance revised DA and dearness relief (DR) by 2% with effect from 1 January this year, effectively takes the component to 60% of Basic Pay up from previous 58%.
DA hike to impact around 1 crore employees, pensioners
One of the most closely watched components of government employees’ salaries and pensions, especially whenever pay hikes or inflation adjustments are discussed. Around 50 lakh central government employees and 65 lakh retired central government pensioners, including defence personnel and retirees, benefit from DA hikes ranging from varying amounts across 18 levels.
However, while millions of central government employees and pensioners receive DA to offset rising living costs, many taxpayers remain unsure how it is credited, taxed, and reported on their income tax returns.
Here’s a look at if DA is subject to income-tax, whether it must be reported in your income tax returns filing and more.
How is DA treated under Income-Tax?
DA aims to help mitigate cost-of-living expenses for central government employees, public sector staff, defence personnel, bank employees, and pensioners. It is a part of an employee’s cost-to-company (CTC) and is credited in the monthly salary of central government employees and pension payout of eligible retirees.
It is thus subject to income tax in its entirety as per your tax slab and taxpayers are required to report DA separately in your I-T returns (ITR) as per tax rules.
What is the difference between DA, DR and HRA?
While DA affects employee salaries, dearness relief (DR) impacts pension payouts. Thus, the key difference is in who the benefit applies to and when, i.e., employees’ salaries and retirees’ pensions.
Meanwhile, House Rent Allowance is designed to assist employees with housing expenses and is taxable under a different head. Further, HRA is exempt from income tax up to a certain limit, unlike DA and DR, which are not.
DA and DR are only available to government and public sector employees, while HRA is also available to both — government and private-sector employees.
July DA hike: Here’s what we know
Hikes are calculated based on the 12-month average as per the method prescribed by the AICPI under the 7th Pay Commission.
The last few DA hikes were under the 7th CPC. Since 2021, there have been 10 hikes, 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 was made in April for 2% hike, taking DA to 60% of basic salary.
According to government data, retail inflation in April 2026 rose to 3.48%, while food inflation climbed to 4.20%. Rising food (milk, vegetables and other essentials), power and fuel (CNG, diesel and petrol) prices are putting pressure on household budgets, and an adjustment in DA would significantly help address inflation concerns for burdened middle-class households, lower-income groups and daily commuters.
While there is no official word yet, the debate over a higher DA revision in the near future has gained momentum. Employees and pensioners are increasingly looking forward to a 2-3% hike in July.
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