In major good news for central government employees and pensioners, the Finance Ministry has hiked dearness allowance by 3% to 58% over the existing rate of 55%. This comes as an early festive gift before Dussehra and Diwali, benefitting about 49.19 lakh Central Government employees and 68.72 lakh pensioners. The 3% hike will play a key role in increasing salaries and pensions under the 7th Pay Commission.
DA Hiked By 3%
In its statement on October 1st, the Union Cabinet led by Prime Minister Narendra Modi approved to release an additional instalment of Dearness Allowance (DA) to Central Government employees and Dearness Relief (DR) to pensioners with effect from 01.07.2025 representing an increase of 3% over the existing rate of 55% of the Basic Pay/Pension, to compensate against price rise.
The combined impact on the exchequer on account of increase in both Dearness Allowance and Dearness Relief would be Rs10,083.96 crore per annum.
It said, "This increase is in accordance with the accepted formula, which is based on the recommendations of the 7th Central Pay Commission.''
Dearness Allowance Benefits:
Generally, the government hikes dearness allowance twice every year for a six-month period from January to June and July to December of the year. The revision in the DA hike is to adjust the cost of living of employees and retirees against the inflation rate.
The last DA hike was in March 2025 by 2% to 55% of basic pay or pensions. This was for the January to June 2025 period. Before this, the DA was at 53%.
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.
7th Pay Commission Minimum Salary Hike:
Under the 7th Pay Commission, the minimum salary is of Rs 18,000 per month. At 55%, the minimum salary rose by Rs 9,900 to Rs 27,900 (Rs 18,000 x 55/100) --- compared to the basic pay of Rs 18,000.
For July to December 2025 period, at 58% DA, the minimum salary would jump by Rs 10,440 to Rs 28,440 (Rs 18,000 x 58/100) compared to minimum pay of Rs 18,000.
The DA hike lifts salary by Rs 540 (Rs 10,440 - Rs 9,900).
7th Pay Commission Minimum Pension Hike:
For pensioners, the minimum pension benefit is of Rs 9,000 under the 7th CPC. Using similar calculation, at 55%, the minimum pension surged by Rs 4,950 to Rs 13,950 ( Rs 9,000 X 55/100), against the minimum pension of Rs 9,000.
From July to December 2025 period, at 58% rate, the minimum pension will surge by Rs 5,220 to Rs 14,220.
The DA surged by Rs 270 (Rs 5,220 - Rs 4,950).
Dearness Allowance Formula:
Central Government Employees: ((Average of All-India Consumer Price Index (with the base year 2001 = 100) for the past 12 months - 115.76) / 115.76) * 100
Central PSU Employees: ((Average of All-India Consumer Price Index (with the base year 2001 = 100) for the past 3 months - 126.33) / 126.33) * 100
Are Dearness Allowance Taxable?
There are no tax exemptions in 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 retirement benefit salary which is a component of salary if all the criteria are fulfilled.
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