Dearness Allowance Hike Likely To Brighten Up Festive Season 2023

A look at the dearness allowance hike possibility, calculation method, impact on your salary and past pattern of DA announcements by the government.

Good News For Central Government Employees

A festive time good news is expected is bring glee to the faces of lakhs of central government employees. The Dearness Allowance (DA) component of their salary is expected to increase by 4% with a retrospective effect from 1 July 2023.  

  • A 4% DA hike is expected to be effective before the festive season

  • DA, calculated on the basic salary, directly boosts your salary amount

  • Looking at past announcements, the time is ripe for a DA update

Revision In Dearness Allowance 

The DA component of the salary is calculated by the central government based on the latest Consumer Price Index for Industrial Workers (CPI-IW). Currently, DA forms 42% of the salary and pension processed by the central government. Mathematically, a 4% hike is emerging, but many are seeing a 3% hike as more practical.

Also Read: What Central Government Employees Must Not Do While Claiming Children Education Allowance?

Basis Of Calculation

The CPI-IW data is released by the Labour Bureau every month. While revising the DA, the average national CPI-IW of the last 12 months is used in a defined formula. For instance, the DA was last updated to 42% in January 2023. 

The DA formula is [{Average of AICPI-IW (Base Year 2001=100) for the last 12 months – 261.42}/261.42x100]

With the average national CPI-IW at 382.32, the DA percentage is 46.24%. This, after ignoring the decimal, amounts to a 4% increase over the existing 42% DA.

Affect On Salary Calculations

DA is calculated as a portion of the basic salary paid to employees (also known as dearness relief, in the case of pensioners). 

If your basic salary is Rs 10,000 monthly, the DA thereon would be Rs 4,200. If the DA increases to 46% as anticipated, the revised DA will be Rs 4,600. This is a Rs 400 increase per month on your basic salary of Rs 10,000. 

Assuming that the increase is reflected in your October salary, you will also be receiving the arrears in DA increase. Therefore, you will receive the incremental dearness allowance for July, August and September. 

Also Read: Why REITs Are A Smart Investment Strategy For Commercial Real Estate?

Why Now?

The likelihood of a DA increase is pinned on the recent track records. In 2022, a DA increase effective from July 2022 was announced on 28 September 2022. Earlier this year, a DA increase effective from January was announced on 24 March 2023. Given the increase in average CPI-IW, an increase seems to be on the cards.

Conclusion

An increase in DA along with arrears would be a welcome windfall just at the brink of the festive season. It can be a good opportunity for you to step up your mutual fund SIP or do some festive shopping, or both!

Click here for the latest articles on Personal Finance News

Also Read3 New Rules Incorporated In LTC For Central Government Employees. Here’s A Complete Guide

NEWSLETTER

Premium Articles