Dearness Allowance (DA) is a cost-of-living adjustment, an increase made to the basic pay of government officials and public sector workers’ employees.
Dearness Allowance is calculated as a percentage of an Indian citizen's basic salary to mitigate the impact of inflation on people.
Each installment of DA was to be calculated with reference to the percentage increase in the 12 monthly average of All India Consumer Price Index (base 1960).
Based on this, the DA is currently calculated with the following formula DA = (A – 261.4)*100/(261.4) Where A = Avg of CPI-IW (base 2016=100) for the past 12 months x linking factor of 2.88[5] Formula for calculating Dearness Allowance for Central public sector employees from 1 January 2007 is : Dearness Allowance %= {(Average of AICPI(Base year 2001=100) for the past 3 months - 126.33)/126.33}*100 Dearness allowance with effect from January or July of a particular year in the future, once the AICPI(IW) for a particular month is published by the Government, whereas for PSU employees it is declared quarterly by DPE (Department of Public Enterprise).
Beginning 1 January 1996, the Dearness Allowance is granted to compensate for price increases to which the revised pay scales relate.
Further in 1994 Central Government merged 50% of the Dearness Allowance (DA) with the basic pay with effective from 1 April 2004 and the Dearness Allowance continued to be calculated with reference to the All IndiaConsumer Price Index for Industrial Workers (AICPI-IW) average as on 1 January 1996 of 306.33 without changing the index base consequent to the merger.
Dearness allowance rate applicable after implementation of 7th Pay Commission recommendations with effective from 1 January 2016 as shown in above table.
Accordingly the Nodal Authority Department of Expenditure, Ministry of Finance has issued the Office Memorandum as shown below:- 31[55] Both pensioners and their families are granted DA and this continues following reemployment with the Government of India or State Governments, a public sector undertaking, autonomous bodies or a local body; that is, DA is allowed in addition to a recipient's fixed pay or "time scale".