Dearness Allowance Hike: DA Hiked By 2% To 60%; Calculate Salary Hike, Pensions - Here's DA Formula

In major good news, the Finance Ministry has hiked the dearness allowance by 2% for central government employees and pensioners under the 7th Pay Commission, effective January 1, 2026. Accordingly, the DA will now be 60%, up from the previous rate of 58%. This is a huge relief for government employees. Also, the announcement comes ahead of the implementation of 8th Pay Commission.

Dearness Allowance Hike:

In its latest update, the Union Cabinet chaired by Prime Minister Narendra Modi approved releasing an additional installment of Dearness Allowance (DA) to Central Government employees and Dearness Relief (DR) to pensioners, effective January 1, 2026. This represents a 2% increase over the existing rate of 58% of the Basic Pay/Pension to compensate against price rises.

"This increase is in accordance with the accepted formula, which is based on the recommendations of the 7th Central Pay Commission," FinMin said.

Notably, the latest hike will lead to a cost of Rs 6,791.24 crore per annum for the government.

As many as 50.46 lakh Central Government employees and 68.27 lakh pensioners are expected to benefit from the DA hike.

Calculate Dearness Allowance Hike On Salary, Pensions:

In general terms, dearness allowance is like an incentive paid by the government to its employees and pensioners as a move to enhance the cost of living of these personnel and retirees against inflation. DA is calculated as a percentage of the basic salary, and hence, it would vary from employee to employee. All central government employees and pensioners receive DA on their basic salary.

The government hikes DA twice every year for a six-month period. This is usually from January to June and July to December periods. The revision in DA is to adjust the cost of living of employees and retirees against the inflation rate.

Dearness Allowance Formula:

There are two types of formulas for DA hike and it depends upon whether you are a central government employee or working in a public sector undertaking (PSU).

For Central Government Employees: DA% = [(Average of AICPI (Base Year 2001 = 100) for the last 12 months - 115.76)/115.76] x 100

For Public Sector Employees" DA% = [(Average of AICPI (Base Year 2001 = 100) for the last 3 months - 126.33)/126.33] x 100

AICPI means All-India Consumer Price Index.

Calculate Salary Hike At 60% DA:

Under the 7th Pay Commission, the minimum salary is Rs 18,000 per month. At 58% DA, the minimum salary would have jumped by Rs 10,440 to Rs 28,440 (Rs 18,000 x 58/100) compared to the minimum pay of Rs 18,000.

But at 60%, the minimum salary would rise by Rs 10,800 to Rs 28,800 (Rs 18,000 + 60/100) compared to the minimum basic pay.

This is an increase of Rs 360 (Rs 10,800 - Rs 10,440) on salary due to 2% hike in DA to 60%.

Calculate Pension Hike At 60% DA:

Currently, the minimum pension under the 7th Pay Commission is at Rs 9,000. So at 58% DA, the pension would have risen by Rs 5,220 to Rs 14,220 compared to the minimum pension of Rs 9,000.

Taking into consideration the 60% DA, the minimum pension surges by Rs 5,400 to Rs 14,400 from Rs 9,000.

The DA accordingly lifts the pension by Rs 180.

There are no tax exemptions on dearness allowance. The DA extended to salaried employees is 100% taxable. Notably, in case if the employee is provided with an unfurnished accommodation free of cost, then this dearness allowance is recognized as part of the retirement benefit salary, which is a component of the salary if all the criteria are fulfilled.

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