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Central government employees and pensioners may soon receive financial relief as fresh indications suggest a possible increase in Dearness Allowance (DA) from January 2026. Based on the latest inflation data released by the Ministry of Labour for December 2025, experts estimate that DA could rise by 5 percent, taking the total rate to 63 percent.

If the government gives its official approval, millions of employees and pensioners are expected to benefit not only from a higher DA but also from arrears for previous months, which could be paid together with their regular salary in the coming weeks.

This development is being closely watched by employee unions and financial analysts, as DA plays a key role in protecting salaries and pensions from the impact of rising inflation.

How DA Increase Is Determined

The central government calculates DA using the All India Consumer Price Index for Industrial Workers (AICPI-IW). This index reflects changes in the cost of living and is published monthly by the Ministry of Labour.

For December 2025, the AICPI-IW stood at 148.2, which remained stable compared to the previous month. According to employee organizations, this figure is sufficient to justify a 5 percent increase in DA under the standard calculation formula used by the government.

At present, central government employees and pensioners are receiving 58 percent DA. If the projected hike is approved, this rate will increase to 63 percent, offering noticeable relief from inflation-related expenses.

When the New DA Rate May Be Implemented

Dearness Allowance is reviewed twice every year — once from January and again from July. Although the revision is effective from January 2026, the official announcement is likely to be made in March or April 2026.

This means employees may receive the revised DA amount with their April salary. Along with the increased monthly allowance, they are also expected to get arrears for January, February, and March 2026, providing a lump-sum financial boost.

In the previous revision cycle, the government had increased DA from 54 percent to 58 percent in July 2025, setting a precedent for the current expectations.

Formula Used to Calculate DA

Employee unions have explained that DA is calculated using the average AICPI of the past 12 months. With the current index level, the calculation works out to approximately 63 percent DA.

The standard formula is:

DA Percentage =
(AverageAICPI×2.88)−261.41÷261.41{(Average AICPI × 2.88) − 261.41} ÷ 261.41(AverageAICPI×2.88)−261.41÷261.41 × 100 − Existing DA

Using the latest figures, the outcome points to a 5 percent rise over the current 58 percent DA, resulting in a new rate of 63 percent.

Transport Allowance Will Also Increase

Whenever DA is revised, Transport Allowance is adjusted in the same proportion. Under the 7th Pay Commission, transport allowance depends on an employee’s pay level and the city category in which they are posted (classified as X, Y, and Z cities).

For example, an employee at Pay Level 5 posted in a Y-category city currently receiving a transport allowance of ₹1,800 would see a significant increase after the DA hike. With DA reaching 63 percent, an additional amount of around ₹1,134 could be added, taking the total transport allowance close to ₹2,934 per month.

This revision will further improve the take-home pay of employees working in urban and semi-urban regions.

Demand to Merge DA with Basic Pay

Several employee unions have renewed their demand to merge DA with basic salary, especially as discussions around the 8th Pay Commission have already begun. They argue that merging DA into basic pay would permanently raise salary levels and improve long-term benefits such as pensions and gratuity.

However, the government has clarified that there is currently no proposal under consideration to merge DA with basic pay. Officials have stated that any such decision would depend on the recommendations of the upcoming pay commission and overall fiscal conditions.

What This Means for Employees and Pensioners

If the expected DA hike is approved, it will lead to a moderate increase in monthly income and help offset rising living costs. For pensioners, the corresponding increase in Dearness Relief (DR) will also apply, ensuring their purchasing power is maintained.

With inflation remaining a concern for households, this potential DA revision could offer timely support to more than one crore central government employees and retirees across the country.

Conclusion

Based on the latest inflation index and established calculation methods, central government employees may soon see DA rise to 63 percent from January 2026, along with arrears for previous months. While the final decision rests with the government, the current indicators strongly suggest a positive outcome.

If implemented as expected, this move will slightly ease the financial pressure caused by inflation and provide much-needed relief to employees and pensioners alike. All eyes are now on the official announcement, which is likely to come in the next few months.