DA Hike 2025 Latest News: The central government has approved of a 2% hike in dearness allowance (DA) for its existing employees. This is set to take the DA of central government employees from its current level of 53% to 55% for their basic pay. Notably, a hike in DA, which is revised every 6 months, also pushes up other salary components such as HRA (House Rent Allowance) and TA (Travel Allowance). Central Government employees will receive this increased DA for the months of January and February 2025 as arrears, along with their salaries for the month of March. The next DA revision announcement is set to take place in November, with the revision effective retrospectively from July 2025. This will be the last DA revision under the 7th Pay Commission, given that the 8th Pay Commission, which was announced by the government in January this year, will go into effect starting January 2026. DA is a crucial component of the salary, since it helps directly in offsetting the impact of inflation on an employee’s gross income.
Cabinet approves 2% DA hike for Govt staff, gives nod to electronics component PLI scheme For Live
The Union Cabinet has approved a 2% Dearness Allowance (DA) hike for government employees, providing relief amid rising inflation. Additionally, the government has cleared the Production Linked Incentive (PLI) scheme for the electronics sector to boost manufacturing.
Will DA be merged with basic pay starting next year?
Historically, the 5th Pay Commission had merged DA with basic pay when it exceeded 50%, a practice that was later discontinued in subsequent commissions. Many wonder if there will be a merger of basic pay with DA before the 8th Pay Commission comes into the picture.
“At this point in time it is too early to say, as there is no official confirmation regarding the merger of dearness allowance with basic pay under the 8th Pay Commission. Although the 6th Pay Commission did recommend against merging DA with basic pay, and the same was considered in the 7th Pay Commission,” says Alay Razvi, Managing Partner, Accord Juris, adds.
Notably, many employee associations, including the National Council of Joint Consultative Machinery, have been demanding the merging of the DA with basic pay. The government, through the minister of state for finance, has recently clarified in a written response in the Rajya Sabha that at present there is no plan to merge DA with basic pay.
“Dearness Allowance is designed to counteract inflation, and its index of rates is revised every six months to align it with the cost of living. This also finds support in the recommendations by the 6th Pay Commission. The Labour Bureau compiles and maintains the All India Consumer Price Index (AICPI) every month based on a series that is effective from September 2020. If the DA is not merged with basic pay, it may continue to be calculated based on the current AICPI,” says Nisarg Desai, Partner, Gandhi Law AssociatesRecently, Pankaj Chaudhary clarified in the Rajya Sabha on March 18, 2025, that the government will not merge 50% of the DA with the basic pay of the central government employees, even as an interim relief before the report of the 8th Central Pay Commission is prepared and adopted. “The consequence is that the central government employees and pensioners will mostly have no choice but to wait for the 8th pay commission’s report. Hence, the existing calculation methodology under the 7th pay commission will likely continue under the 8th pay commission unless the 8th pay commission proposes a new base and the government agrees to it,” explains Suma RV, partner at Kocchar and Co. legal consultants.
How will DA be calculated under the 8th Pay Commission?
At present, there is no official or publicly available source that explicitly states how the Dearness Allowance (DA) for central government employees will be calculated from January 1, 2026, or whether it will continue to be based on the All-India Consumer Price Index for Industrial Workers (AICPI-IW).
Monika Tanna, partner, Singhania & Co., notes that the calculation of DA is typically based on the AICPI-IW, as has been the practice under previous pay commissions. However, any changes to this formula or the base year for AICPI-IW would be determined by the 8th Pay Commission and approved by the government. However, there is a strong possibility that the base year, which is set at 2016, may be reset, keeping in mind the rising inflation.
Which is why the possibility of resetting the base year for AICPI-IW calculations cannot be ruled out, as periodic revisions are undertaken to reflect evolving consumption patterns and economic realities. “Any definitive changes in the methodology, base year, or integration of DA with basic pay would ultimately depend on the recommendations of the 8th Pay Commission, which are yet to be finalized. Until then, discussions surrounding these potential revisions remain largely theoretical, awaiting a formal policy decision from the government,” highlights Sandeep Bajaj, Advocate, Supreme Court of India”.
