Tag: Section 157

Dearness Allowance (DA): Meaning, Tax Treatment and the 60% Rate from January 2026

Posted on by CA Meet Dhrangadhariya

Last updated: 13 August 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Dearness allowance (DA) is paid on top of basic pay to offset inflation. It is fully taxable as salary.
  • DA counts as “salary” for HRA, gratuity and leave encashment limits only if the terms of employment provide for it.
  • For Central Government employees and pensioners the Cabinet approved a 2% rise from 58% to 60% with effect from 01/01/2026, with arrears for January to March 2026.
  • Arrears of DA taxed in a later year can qualify for relief under section 157 by filing Form 39.

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 current rate for Central Government employees

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.

Tax treatment of DA

  • Taxable in full as salary. Under section 16 of the Income-tax Act, 2025, “salary” includes wages, and DA is part of wages. It has no exemption of its own. DR on pension is taxed as pension, which is also salary.
  • Report it as salary. It forms part of the salary shown in your TDS certificate (Form 130) and in the return, and should match your payslip.
  • Arrears. DA revised with retrospective effect is paid as arrears, for example the January to March 2026 arrears above. Taxed in the year of receipt, it can push you into a higher slab. If so, relief under section 157 is available by furnishing Form 39 (see our post on relief for arrears of salary).

Where DA counts as “salary” for other limits

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.

DA and HRA are different

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)

DA for pensioners

Pensioners get DR on the pension at the same rate as the Central DA, and the DR is taxed with the pension as salary.

Before you rely on this

  • The Cabinet decision is the source for the 60% rate. Confirm the rate from the Department of Expenditure order that applies to you, and from your State government’s order if you are a State employee.
  • The revision due from 01/07/2026 is expected to be announced later in the year, so the rate shown here may change with retrospective effect and arrears.

Frequently asked questions

What is dearness allowance?

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.

Is dearness allowance taxable?

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.

Is DA part of salary for HRA and gratuity?

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.

What is the DA rate for Central Government employees now?

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.

Do private employees get DA?

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.

What is dearness relief?

The equivalent of DA for pensioners. It is paid on pension and is taxable as pension, which is part of salary.

Official sources

Related reading

Disclaimer

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.

Relief on Salary Arrears: Section 157(1) (Earlier Section 89(1)), Rule 73 and Form 39

Posted on by CA Meet Dhrangadhariya

Last updated: 31 July 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • If you receive salary arrears, advance salary or family pension arrears and pay a higher rate of tax because of it, you can claim relief under section 157(1) of the Income-tax Act, 2025, earlier section 89(1).
  • Relief is the extra tax caused by the arrears in the year of receipt, less the tax the same arrears would have caused in the years they relate to, if the first is bigger.
  • From 01/04/2026 the claim is made in Form 39 (earlier Form 10E), under Rule 73 of the Income-tax Rules, 2026, by the return due date, or to the employer.
  • The same rule gives relief on gratuity of 5 years or more of service, retrenchment compensation and commuted pension.

Arrears are salary for earlier years that you receive in a later year. Because tax rates rise with income, receiving three years of arrears in one year can push you into a higher slab. The law corrects for this by giving relief. From Tax Year 2026-27 it is section 157(1) of the Income-tax Act, 2025, the calculation is in Rule 73 of the Income-tax Rules, 2026, and the claim form is Form 39. Up to FY 2025-26 it is section 89(1), Rule 21A and Form 10E.

When does the relief apply?

When your total income for the year of receipt is taxed at a higher rate than it would otherwise have been, because of receipts such as:

  • salary received in arrears or in advance, or family pension in arrears (the “additional salary”),
  • gratuity for past service of five years or more,
  • retrenchment compensation (where Rule 73 provides), and
  • commutation of pension.

For other receipts, the Board may allow relief it considers fit.

How is relief on arrears calculated? (Rule 73)

Relief is A minus B, if A is more than B.

  1. Work out which tax years the additional salary relates to, and how much relates to each.
  2. A, the extra tax in the year of receipt: tax on total income of the year of receipt, less tax on that income reduced by the arrears.
  3. B, the tax the arrears would have attracted in the years they relate to: for each such year, tax on the total income of that year increased by the arrears for that year, less tax on the total income of that year as it stood. Add up the figures for all the years.
  4. If A is more than B, the difference is your relief. If B is the same or more, there is no relief.

Example

Meena’s total income for FY 2026-27 is ₹10,00,000, which includes ₹2,00,000 of arrears relating to FY 2025-26. Her income for FY 2025-26 was ₹6,00,000.

Step Tax in ₹ (old regime slabs, before cess)
Tax on ₹10,00,000 in FY 2026-27 1,12,500
Tax on ₹8,00,000 (without the arrears) 72,500
A: extra tax in FY 2026-27 40,000
Tax on ₹8,00,000 in FY 2025-26 (income plus arrears) 72,500
Tax on ₹6,00,000 in FY 2025-26 32,500
B: tax the arrears would have attracted in FY 2025-26 40,000
Relief (A minus B) Nil

Here the slab rate is the same in both years, so the arrears cost the same tax either way and no relief arises. Relief appears when the earlier year’s income was low enough that the arrears would have been taxed at a lower rate there. Rebate under section 156 and cess are also taken into account in a real computation, which these figures leave out.

Relief on gratuity

For gratuity received for past service, the relief is the gratuity multiplied by the excess of the average tax rate in the year of receipt over a blended average of the two or three earlier years:

  • Service of 5 years or more but under 15 years: compare the average rate on total income including the gratuity in the year of receipt with the average of the rates for the two preceding years, each computed on that year’s income plus half of the gratuity.
  • Service of 15 years or more: compare with the average of the rates for the three preceding years, each computed on that year’s income plus one third of the gratuity.
  • Relief is allowed only if the average rate in the year of receipt is higher.

Commutation of pension and retrenchment compensation follow the same pattern with their own fractions in the rule.

Form 39 and how to claim

  • To claim relief under section 157(1), furnish the particulars in Form 39 on or before the due date for filing the return of income (section 263(1)(c)).
  • A Government servant or an employee of a company, co-operative society, local authority, university, institution, association or body can instead give the particulars to the person who pays the salary, so that the employer allows the relief in deducting tax.
  • Form 39 replaces Form 10E. The form asks for the tax years to which the additional salary relates, the amount for each year, the total income and tax payable for each year with and without the arrears, and the relief worked out.
  • Up to FY 2025-26, Form 10E is filed online on the e-filing portal under e-File, Income tax forms, File Income Tax Forms, in the tab for persons not having business or professional income. A return claiming relief without the form may get a notice saying the relief has not been allowed.

Things to remember

  • Keep the arrears statement from your employer and the computation for each year to which the arrears relate.
  • Relief reduces tax; it does not reduce income. The relief is shown in the return.
  • Arrears are taxed in the year of receipt, not the year they relate to. The relief is how the law evens it out.

Frequently asked questions

What is relief under section 89(1)?

Relief for the extra tax you pay because arrears or advance salary, or arrears of family pension, bump you into a higher rate in the year you receive them.

What is the section number from Tax Year 2026-27?

Section 157(1) of the Income-tax Act, 2025, with the calculation in Rule 73 of the Income-tax Rules, 2026.

Which form do I file?

Form 39 from 01/04/2026. Up to FY 2025-26 it is Form 10E.

When must the form be filed?

On or before the due date for the return under section 263(1)(c). A salaried employee can also give the particulars to the person who pays the salary.

Can I get relief on gratuity or commuted pension?

Yes. Rule 73 also gives relief on gratuity for past service of 5 years or more, retrenchment compensation and commutation of pension, where the extra receipt pushes your rate up.

Official sources

Disclaimer

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.