DA for central government employees is determined using the most recent Consumer Price Index for Industrial Workers.

DA hike and DR for central government employees: Diwali 2024 came early for central government employees/pensioners with PM Narendra Modi-led Union Cabinet approving the much awaited dearness allowance and dearness relief hike. The dearness allowance/dearness relief has been hiked by 3%.
Generally, the central government assesses and adjusts the DA twice yearly, in January and July, with official announcements made subsequently.While serving employees receive DA, pensioners are entitled to Dearness Relief.

The last DA adjustment, a 4% hike, was announced in March, with effect from January 2024. After that central government employees were eligible for DA of 50% of their basic salary, while pensioners receive a DR of 50% of their basic pension.
The increase in DA and DR would provide financial relief to approximately 1.15 crore central government employees and pensioners, offering a substantial monetary support amidst the rising cost of living.
DA serves as a component of the salary intended to mitigate the effects of inflation. A hike in DA periodically adjusts the effective salary of government employees to maintain their purchasing power.
Dearness Allowance or DA for central government employees is determined using the most recent Consumer Price Index for Industrial Workers (CPI-IW) data. This index is released on a monthly basis by the Labour Bureau, which operates under the Ministry of Labour. To calculate the DA percentage under the 7th Pay Commission, the following formula is used:
7th CPC DA% = [{12 month average of AICPI-IW (Base Year 2001=100) for the last 12 months – 261.42}/261.42×100]
It is worth noting that when a DA or DR increase is announced, it is typically applied retroactively from January 1 and July 1 of the current year. Traditionally, the central government declares the July DA increase prior to the onset of the festive season.