Centre approves 2% hike in DA and DR for central govt employees, pensioners ahead of 8th Pay Commission

The Cabinet on Saturday approved a 2% increase in Dearness Allowance (DA) for central government employees and pensioners, offering a modest boost to compensation amid growing demands of broader pay revisions.

The latest hike will take the total DA from 58% to 60% of basic pay. It will be effective from January 1, 2026 and will also apply to pensioners, who will receive a corresponding increase in Dearness Relief (DR).

The combined impact on the exchequer on account of increase in both Dearness Allowance and Dearness Relief would be ₹6791.24 crore per annum. The move is set to benefit 50.5 lakh employees and 68.3 lakh pensioners of the Central government, according to an official notice.

The DA was last revised by the government in October, when it was hiked from 55% to 58%. The change was made effective from July 1, 2025, with arrears paid for the intervening period, benefiting both serving employees and pensioners.

Union's demand of a higher fitment factor

The development also comes amid mounting pressure from employee unions who have been pushing for sweeping changes under the proposed 8th Pay Commission. In a memorandum submitted to the government, the National Council–Joint Consultative Machinery (NC-JCM) has sought a significantly higher fitment factor of 3.83.

Currently, it is only a demand. Nothing has been finalised yet. The government will decide the actual number.

If the proposal is accepted, then it could lead to a substantial increase in the minimum basic pay of government employees, from the current amount of ₹18,000 to around ₹69,000.

What does a hike in basic pay means for pensioners?

Since pension is linked directly to the last drawn basic pay, if the basic pay rises sharply, then the following will happen:

• Pension rises automatically
• Family pension also increases
• DA on pension continues

What is DA and when is it revised?

Dearness Allowance is a salary component which is paid to public-sector employees and pensioners to offset the impact of inflation and rising living costs. It is calculated as a percentage of the basic salary, and revised twice a year (January and July), based on the Consumer Price Index (CPI).

It is also fully taxable and varies depending on factors like basic pay and inflation rates, according to ClearTax. It is treated as part of the salary income and added to your total income for tax calculation based on your applicable income tax slab. It must be reported separately in your ITR.

Though under the current rules, DA continues to be revised twice a year. However, once the 8th CPC is implemented, the existing DA will likely be merged into the basic pay, effectively resetting the DA to zero, Mint reported earlier.