Dearness Allowance (DA): Meaning, Tax Treatment and the 60% Rate from January 2026
CA Meet Dhrangadhariya 
August 13, 2026
CA Meet Dhrangadhariya August 13, 2026
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Last updated: 13 August 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP
Quick summary
Dearness allowance (DA) is the part of pay that moves with the price level. It is paid by the Central and State Governments, public sector bodies and some private employers, as a percentage of basic pay, so that the real value of pay is not eaten away by inflation. Pensioners receive the same relief as dearness relief (DR).
The Union Cabinet approved an additional 2% DA and DR with effect from 01/01/2026, taking the rate from 58% to 60% of basic pay and pension. Employees and pensioners get arrears for January, February and March 2026 (SCC Online, 20/04/2026). The Centre revises DA twice a year, with effect from 1 January and 1 July, based on the All-India Consumer Price Index for industrial workers. State governments announce their own rates and dates.
For central employees the DA is paid on basic pay: a basic pay of ₹56,100 at 60% gives DA of ₹33,660 a month.
Several limits are worked out on “salary” rather than on pay as a whole. The Act and Rules say that salary includes dearness allowance if the terms of employment so provide, and excludes all other allowances and perquisites:
| Use | Where |
|---|---|
| HRA exemption (old regime): 50% or 40% of salary, and rent paid less 10% of salary | Rule 279 |
| Gratuity: half a month’s salary for each completed year (employees not covered by the gratuity law) | Section 19(2)(b) |
| Leave encashment: ten months’ average salary | Section 19(2)(b) |
If your terms of employment do not provide for DA to count, it is left out of these calculations. For a government employee the pay rules usually do count it. Check the appointment letter or the service rules rather than assume.
Example: basic pay ₹60,000 and DA ₹36,000 (60%), HRA received ₹30,000 a month, rent paid ₹35,000 a month, Mumbai, old regime. Salary for HRA is ₹96,000 (the terms of service include DA). The exempt HRA is the least of the HRA received (₹30,000), rent paid less 10% of salary (35,000 - 9,600 = ₹25,400) and 50% of salary (₹48,000), so ₹25,400 a month.
| Point | Dearness allowance | House rent allowance |
|---|---|---|
| Purpose | Offsets rising prices | Helps with rent |
| Paid to | Government and public sector employees mainly, some private employers | Most employers |
| Tax | Fully taxable | Exempt in part under the old regime, limited by Rule 279 |
| Based on | Basic pay | Basic pay (and DA where the terms provide) |
Pensioners get DR on the pension at the same rate as the Central DA, and the DR is taxed with the pension as salary.
An allowance paid on top of basic pay to compensate for rising prices. It is calculated as a percentage of basic pay and revised from time to time.
Yes. It is wages, and so part of salary under section 16 of the Income-tax Act, 2025, and is fully taxable in the year it is due or received, subject to the usual deductions.
Yes, if the terms of employment so provide. Rule 279 (HRA) and section 19(2)(b) (gratuity and leave encashment) both say “salary” includes dearness allowance if the terms of employment so provide, but excludes other allowances and perquisites.
60% of basic pay from 01/01/2026, up from 58%, as approved by the Union Cabinet in April 2026. The revision due from 01/07/2026 had not been announced when this was checked on 06/10/2026.
Not as a rule. Government and public sector employees receive it. Some private employers and wage settlements also pay a dearness allowance or variable DA, and the same tax rules apply.
The equivalent of DA for pensioners. It is paid on pension and is taxable as pension, which is part of salary.
This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.
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