DA hike: The government on Saturday has increased Dearness Allowance (DA) and Dearness Relief (DR) by 2 per cent, benefiting about 50.46 lakh central government employees and 68.27 lakh pensioners.

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, said Information and Broadcasting Minister Ashwini Vaishnaw while briefing about decisions taken at the Cabinet meeting chaired by Prime Minister Narendra Modi.

The approval to release an additional instalment of DA to central government employees and DR to pensioners with effect from January 1, 2026, represents an increase of 2 per cent over the existing rate of 58 per cent of the Basic Pay/Pension, to compensate for the price rise.

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

Briefing on the Cabinet decisions, Information and Broadcasting Minister Ashwini Vaishnaw stated that this decision will benefit over 50 lakh Central Government employees and more than 68 lakh pensioners.

"Another very big decision was taken today. I would like to extend my heartiest congratulations. DA and DR have been increased for all our central government employees and pensioners, which will cost the Government of India a total of Rs. 6,791 crore. Basically, DA and DR will become 60 per cent of the basic pay from January 1, 2026. It has been increased by 2 per cent, from 58 per cent to 60 per cent. It will become 60 per cent of the basic pay. There are a total of about 50 lakh employees and 68 lakh pensioners of the Government of India. This will be a huge benefit for all of them," he said.

This increase in DA will be implemented under the 7th Pay Commission, as the 8th Pay Commission has not yet been implemented.

What is the formula and calculation of DA?

DA is calculated based on the 12-month average data of AICPI-IW, a monthly index that measures the relative change in retail prices of a fixed basket of goods and services consumed by industrial workers at a given point in time.

DA per cent = 12-month average of AICPI-IW (base year 2001) - 261.42}/261.42 x 100]

However, we must first link the 2016 base value to the 2001 base value by multiplying it by 2.88.
The 2.88 factor is calculated to equate the latest base year (2016) to 2001.

Labour Bureau data shows that for August 2020, the value of CPI-IW under old base (2001=100) was 33.8 and CPI-IW under new base (2001=100) was 33.8 and CPI-IW under new base (2016=100) was 117.4, hence the factor is calculated as 338 ÷ 117.4 = 2.88.

The AICPI-IW reading for December 2025 was 148.2, bringing its 12-month average to 145.54.
Estimated DA hike for January 2026

DA per cent = [(145.54X2.88) - 261.42/261.42X100]
= 419.15-261.42/261.42X100
= 0.6033X100 = 60.33 per cent

How much can central govt employees expect in salary hike after 2% dearness allowance boost? Here's CALCULATION

Following this 2% increase in DA, the potential rise in the monthly salary of Central Government employees is outlined here.