ITR Filing FY24-25: Is Dearness Allowance (DA) Taxable?

As the deadline for Income Tax Return (ITR) filing for FY 2024–25 approaches, many salaried individuals, especially government employees, are seeking clarity on how various salary components impact their tax liability.

One such key component is Dearness Allowance (DA), a cost-of-living adjustment designed to counteract inflation. But is DA taxable, and how should it be reported in your ITR? This blog breaks down the tax treatment of DA, recent rate revisions, and what you need to keep in mind while filing your return for FY24–25.

What is Dearness Allowance (DA)?

Dearness Allowance (DA) is a cost-of-living adjustment component of salary paid primarily to government employees and pensioners. It is calculated as a percentage of the basic salary and aims to protect income against inflation. The government typically revises DA rates twice a year in January and July based on the Consumer Price Index (CPI).

Recent Update on DA Rates

Effective January 1, 2025, the DA rate for central government employees was increased from 53% to 55%. Similarly, Dearness Relief (DR) for central government pensioners has been increased by 4%, bringing it up to 50%.

To illustrate: if a government employee earns a basic monthly salary of ₹45,700, their DA at 53% would have been ₹24,221. With the new 55% rate, DA increases to ₹25,135, resulting in an extra ₹914 in their monthly salary.

Is DA Taxable in?

Yes, DA is fully taxable for salaried individuals under the Income Tax Act. It must be shown separately in the Income Tax Return (ITR) under the “Salary” head.

If an employee is provided with rent-free accommodation, DA also becomes relevant for calculating retirement benefits and perquisites, depending on whether it is considered for retirement benefits as per the terms of employment.

Taxation of DA for Pensioners

Pensioners drawing a government pension are eligible for Dearness Relief (DR), which is taxed similarly. However, re-employed pensioners usually do not receive DA unless they are appointed under time-scale or fixed-pay terms.

Read More: ITR Filing Schedule for FY 2024–25: Key Deadlines to Know.

Conclusion

As you prepare your ITR for FY 2024–25, it’s important to accurately report DA and understand how it influences your overall tax liability. Stay updated on rate changes and ensure all income components are correctly disclosed to avoid discrepancies or notices from the tax department. Proper reporting of DA ensures compliance and helps you make informed financial decisions.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.