While many changes may occur in the calculation of Dearness Allowance (DA), the impact on millions of employees across the country will be massive. This change may also directly impact salary structures by changing the current formulas for calculating DA. If you’re a government worker or someone who keeps abreast of these changes, here is all you need to know.
8th Pay Commission Panel to Be Formed Soon
The long-awaited 8th Pay Commission is now taking shape, with the expectation of a panel being constituted in April 2024. This commission has been approved by the Central Government earlier this year and will revise pay structures after 2025.
The tenure of the 7th Pay Commission will end on 31 December 2025, and the new recommendations will take effect from 1 January 2026. However, it may take 15-18 months to submit the final report, while implementation may happen in the year 2027. Meanwhile, some reports say that the recommendations might come in earlier, although the actual implementation will happen as per the time mentioned.
Potential Changes in Dearness Allowance Calculation
Most importantly, exactly how Dearness Allowance will be affected in the event of a merger with basic salary under the new pay commission has generated widespread speculation. While nothing can be confirmed, experts are guessing that there might be a change in the base year for the DA calculation.
Actually, the base year for AICPI-IW is 2016, which was a year set up during the period of the 7th Pay Commission. With increased inflation, this demand to change the base year had only gotten stronger. If the base year happens to be changed to 2026, then the DA may well go for a complete revision with a resetting of the DA value to zero just before it begins recalculation.
Will the Old DA Be Merged?
If the 8th Pay Commission sees the light of implementation, there might be a possibility of the DA becoming 61% by January 2026. However, changes made to the base year may cause the accumulation of DA to be merged into basic pay, as was done in 2016.
The present DA of 125% plus the old existing DA would have been absorbed into a new basic pay structure with a DA of zero under the 7th Pay Commission. Future DA would instead be calculated on this new basic pay through the salary matrix.
How the Pay Structure Evolved
The 6th Pay Commission has two components:
- Pay in the Pay Band
- Grade Pay
The two were melded together in the 7th Pay Commission and turned into a single Consolidated Basic Pay, integrating the previous 125% DA. As a result of the restructuring, salaries have gone up, and with it, the pay matrix has become rather simple and easy to navigate when considering promotion and increments.
How is DA Calculated? The Key Formula
The DA calculation is based on the All India Consumer Price Index for Industrial Workers (CPI-IW). This index tracks retail price fluctuations to determine inflation trends. The base year for calculation is 2001, with a reference value of Rs 100.
DA Calculation Formula
The formula used to determine the DA percentage is:
DA% = [(Average of AICPI (Base Year 2001=100) for the last 12 months – 115.76) / 115.76] × 100
This formula ensures that DA adjustments reflect the actual increase in living costs over time.
DA Hike Trends Over the Last 5 Years
Tracking DA hikes helps employees anticipate salary revisions. Below is a snapshot of DA percentage increases from 2019 to 2024:
| Month | CPI(IW) Base Year 2001=100 | DA% Monthly Increase |
|---|---|---|
| Jun-2019 | 316 | 17.09% |
| Dec-2019 | 330 | 21.43% |
| Jun-2020 | 332 | 24.94% |
| Dec-2020 | 118.8 | 28.18% |
| Jun-2021 | 121.7 | 31.25% |
| Dec-2021 | 125.4 | 34.44% |
| Jun-2022 | 129.2 | 38.37% |
| Dec-2022 | 132.3 | 42.37% |
| Jun-2023 | 136.4 | 46.24% |
| Dec-2023 | 138.8 | 50.28% |
| Jun-2024 | 141.4 | 53.36% |
| Dec-2024 | 143.7 | 55.99% |
As seen, DA has consistently risen, reflecting increasing inflation and cost-of-living adjustments.
Projected Salary Impact: How DA Affects Your Take-Home Pay
Employees often wonder how DA revisions impact their salaries. Below is a breakdown of current and projected salaries at 53% and 56% DA for different basic pay scales:
Salary Calculations at 53% and 56% DA
| Basic Salary | Projected Salary at 53% DA | Projected Salary at 56% DA |
|---|---|---|
| Rs 25,000 | Rs 38,250 | Rs 39,000 |
| Rs 35,000 | Rs 53,550 | Rs 54,600 |
| Rs 40,000 | Rs 61,200 | Rs 62,400 |
| Rs 60,000 | Rs 91,800 | Rs 93,600 |
| Rs 70,000 | Rs 1,07,100 | Rs 1,09,200 |
| Rs 80,000 | Rs 1,22,400 | Rs 1,24,800 |
| Rs 90,000 | Rs 1,37,700 | Rs 1,40,400 |
| Rs 1,00,000 | Rs 1,53,000 | Rs 1,56,000 |