Centre Approves 2% DA Hike for Government Employees, Impact on Basic Salary Calculated

Dearness Allowance Hike Announced for Central Government Employees and Pensioners

The Centre has announced a 2 percent dearness allowance (DA) and dearness relief (DR) hike, effective from January 1, 2026. This increase will bring the overall rate to 60 percent, benefiting approximately 50.46 lakh central government employees and 68.27 lakh pensioners against price rise.

The Union Cabinet, chaired by Prime Minister Narendra Modi, approved an additional instalment of DA and DR. The DA has been revised as part of the biannual cycle, with the last increase being from 54 percent to 58 percent in July 2025. The Centre said the DA increase of 2 percent over the existing rate of 58 percent of the basic pay or pension will compensate for the price rise.

The combined impact on the exchequer on account of an increase in both Dearness Allowance and Dearness Relief would be Rs 6,791.24 crore per annum. This increase is in accordance with the accepted formula, which is based on the recommendations of the 7th Central Pay Commission.

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Calculating the Impact of 2% DA on Employee's Salary

DA is calculated based on the 12-month AICPI-IW (All-India Consumer Price Index for Industrial Workers) released by the Labour and Employment Ministry. Under existing practice, DA is revised every six months. The dearness allowance is calculated as a percentage of basic pay, which has now risen by 2 percentage points. At 60 percent DA, an employee with a basic pay of Rs 50,000 will receive Rs 30,000 DA, meaning the latest hike adds Rs 1,000 per month to their salary.

Central government employees can expect to receive the increased DA in the next 2-3 months, along with arrears from January to April 2026.

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The Centre has followed the traditional rule of resetting DA to zero after the 8th Pay Commission is implemented, likely in 2027-28. The accumulated DA is effectively merged into the basic pay, and the revised salary is then calculated by applying the fitment factor to the old basic pay.

The National Council of Joint Consultative Machinery (NC-JCM) has suggested replacing the 12-month average with a six-month average for DA calculation, as DA is paid once every six months. The committee has also suggested merging basic pay and basic pension if the DA/DR exceeds 25 per cent.