ITR Filing FY26: Is Dearness Allowance (DA) Taxable?

Dearness Allowance (DA) plays a crucial role in the salary structure of government employees and pensioners, especially in the face of inflation. For those filing their income tax returns for FY 2025–26, it’s important to understand how DA is treated under the Income Tax Act and what recent changes may affect your taxable income.

What is Dearness Allowance (DA)?

DA is a cost-of-living adjustment paid to employees of the government and public sector undertakings. It helps mitigate the impact of inflation on take-home pay and is calculated as a percentage of the basic salary. The government revises DA twice annually 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?

Yes, dearness allowance is fully taxable for salaried individuals. It must be separately reported while filing income tax returns. When the employee receives rent-free unfurnished accommodation, DA is also considered while calculating retirement benefits, provided certain conditions are met.

Tax Treatment for Pensioners

Pensioners receiving central government pensions are also entitled to DA, which is revised in tandem with salary changes for serving employees. However, re-employed pensioners generally do not receive DA, unless the re-employment is on a time-scale or fixed-pay basis, and only up to their last drawn salary.

Notably, pensioners living abroad without re-employment are eligible for DA, while those re-employed overseas are not.

Read More: ITR Filing 2025: What 80C, 80D, and 24B Mean for Your ITR.

Conclusion

As DA forms a significant part of the compensation for public sector employees and pensioners, it’s vital to understand its tax implications during income tax filing. For FY 2025–26, ensure that DA is reported accurately in your return to avoid discrepancies and make use of the latest allowances as announced by the government.

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