Good news for government employees ahead of Diwali 2024! On Wednesday, the central government announced a 3% hike in Dearness Allowance (DA), effective from July 1, 2024.
This increase aims to provide essential relief to central government employees and pensioners, helping them manage the rising cost of living due to inflation.
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Dearness Allowance is a payment made to public sector employees and pensioners to help with rising costs of living. The allowance is regularly updated and is calculated as a percentage of an individual’s basic salary or pension. India, Pakistan, and Bangladesh are among the countries where public sector workers benefit from DA, with some private sector employees in these regions receiving it as well.
The DA hike generally follows a biannual schedule, with revisions carried out in January and July, and formal announcements made in March and September. If the pattern continues, the official announcement should come in October 2024.
As DA hikes are also linked to pension adjustments, pensioners can expect their Dearness Relief (DR) to rise in tandem with the latest increase, providing them with additional financial relief.
How DA is calculated
DA is calculated based on the All India Consumer Price Index (AICPI), which tracks retail prices. The percentage of DA can vary depending on whether an employee lives in an urban, semi-urban, or rural area. For example, for central government employees, the DA is calculated using a specific formula based on the AICPI index.
Take this scenario: X, a government employee, earns Rs 35,000 as their monthly basic pay. After applying a 3% DA increase, X’s new monthly salary would be Rs 36,050, with an annual salary of Rs 4,32,600, according to Bank Bazaar.
3% DA increase:
DA increase = Rs 35,000 x 3% = Rs 1,050
New monthly salary = Rs 35,000 + Rs 1,050 = Rs 36,050
New yearly salary = Rs 36,050 x 12 = Rs 4,32,600
“DA is provided to employees to offset the effects of inflation during a financial year and is calculated based on the All India Consumer Price Index (AICPI), which tracks retail price movements. The DA is revised twice a year, in January and July, and a hike means increased take-home pay for government employees,” Adhil Shetty, CEO of Bankbazaar.com said.
He added, “The method for calculating DA was revised by the government in 2006, and this calculation adjusts government employees’ salaries to reflect current economic conditions, helping them manage inflationary pressures.”
For central government employees:
DA% = (Average of AICPI (Base year 2001 = 100) for the last 12 months – 115.76) x 100 / 115.76
For public sector employees:
DA% = (Average of AICPI (Base year 2001 = 100) for the last 3 months – 126.33) x 100 / 126.33
How DA is taxed
DA is taxable and employees must declare it as part of their income when filing income tax returns. For salaried individuals, DA is added to the basic salary and taxed under the “Income from Salary” section of the Income Tax Act. Furthermore, DA is also factored in when calculating retirement benefits, such as provident fund contributions or pensions.
For government employees, DA is a fixed percentage of the basic salary and is revised twice a year based on inflation. It remains fully taxable like other allowances. If included in retirement benefits, it influences the tax calculations for those benefits.
DA hike in other states
Several states have also announced DA hikes recently. Chhattisgarh, for instance, declared a 4% increase, effective from October 1, bringing the state employees’ DA to 50% of their basic pay. Chief Minister Vishnu Deo Sai stated this decision would benefit nearly 3.9 lakh employees.
Other states followed suit. Rajasthan implemented a 4% DA hike in September 2024, pushing the total to 46% from July 1. Similarly, Himachal Pradesh announced a 4% hike in September, benefiting its state employees and pensioners alike. Both states made the increase effective from July 1, 2024.
The DA hikes come as inflation continues to challenge household budgets across the country. With the upcoming festive season, many hope the increased payouts will provide a welcome boost to public sector employees.
First Published: Oct 16 2024 | 3:41 PM IST