The Union Cabinet on Wednesday (October 28) approved three per cent increase in the dearness allowance (DA) and dearness relief (DR) for government employees and pensioners – taking it from 60 to 63 per cent of the basic pay. The increase comes more than a week before Diwali and will be applicable from July 1 this year. About 48 lakh central government employees and 68 lakh pensioners will benefit from the hike. The increase follows the accepted formula based on the recommendations of the Seventh Pay Commission.
Dearness Allowance is a fundamental cost-of-living adjustment designed to support government employees and pensioners. It functions specifically to offset the impact of inflation on fixed incomes. The allowance is calculated as a percentage of the basic pay and undergoes periodic revisions based on established inflation indices to maintain the purchasing power of the workforce.
The allowance, linked to inflation, is revised twice a year, typically in January and July. It is worked out based on the Consumer Price Index for Industrial Workers (CPI-IW), released monthly by the Labour Bureau under the Labour Ministry.
A letter from the employee union letter had recently highlighted the rise in DA over the past few years. According to the letter, DA for central government employees stood at 46% in July 2023. It rose to 50% in January 2024, 53% in July 2024, 55% in January 2025, 58% in July 2025 and 60% in January 2026. This represents an increase of 14 percentage points between July 2023 and January 2026.
The Seventh Pay Commission is currently in force. Under its rules, the DA rate effective from July 1, 2026, is calculated using the average All-India Consumer Price Index for Industrial Workers (AICPI-IW) over the preceding 12 months, from July 2025 to June 2026.
The formula used to calculate DA for central government employees is: DA (%) = [(12-month average AICPI-IW × 2.88) − 261.33] / 261.33 × 100.
Since the DA hike will be effective from July 1, 2026, the central governmen employees and pensioners will get a higher salary this month with DA and DR arrears included.
