If you are a central government employee or have retired from central government services, the government might just ‘hike’ your dearness allowance and dearness relief soon. Experts are hopeful that the government might announce its biannual revision to the DA (Dearness Allowance) in the coming week.
Many experts anticipate that the DA, which is applicable for present central government employees, and DR (dearness relief), which applies to pensioners and will be effective starting January 1, 2025, will be hiked by as much as 2%. If it happens, it will be one of the lowest DA hikes in the last 7 years, as DA was raised by 2% in July 2018 from 7% to 9%. However, some experts expect a bigger hike of 3% to 4%.
An increase in DA leads to a direct rise in gross salary and pension payouts. At present, DA stands at 53% of an individual’s basic pay. The impact of an estimated 2% DA hike would mean that an employee with a basic pay of Rs 20,000 would see a Rs 400 rise in their monthly DA, leading to a corresponding increase in their overall earnings as well.
The last DA hike, announced in October 2024, was effective retrospectively from July 2024. Herein, the DA was hiked from 50% to its present level of 53%.
By how much will DA increase in March 2025?
The Dearness Allowance (DA) plays a crucial role in determining the take-home salary of government employees and pensioners. As a cost-of-living adjustment, DA is calculated as a percentage of basic pay and makes sure that pensioners and salaried employees can mitigate the impact of inflation.
Explains Shryeshth R. Sharma, Partner, SKV Law Offices, “The Central Government reviews the dearness allowance (DA) twice a year, once in January and again in July. The dearness allowance rate is determined based on the All-India Consumer Price Index for Industrial Workers (AICPI-IW), published by the Labor Bureau. The government decides on the DA hike after analysing the AICPI-IW data from the previous six months.However, some experts anticipate that the rise in DA would be more than 2%, given that RBI governor, in his recent address in February 2025, noted that the Consumer Price Index inflation for the current financial year is projected at 4.8%.According to Utsav Trivedi, Partner, TAS Law, the DA is expected to increase by 3% to 4% this time around, raising it from the current 53% to either 56% or 57%. This will result in a direct increase in take-home salaries for government employees and higher pensions for retirees.
“For example, an entry-level employee with a basic salary of Rs 18,000 will see an increase of Rs 540 to Rs 720 per month, while a senior employee with a Rs 50,000 basic salary will get Rs 1,500 to Rs 2,000 more. The hike will help counteract inflationary pressures on household expenses,” he adds.
In January this year, PM Modi also approved the formation of the 8th Pay Commission, marking a significant step toward revising pay scales for central government employees and pensioners. This will be effective January 1, 2026.
A key element of every pay commission is the fitment factor, which determines the level of salary and pension increment. This fitment factor is multiplied by the employee’s current basic pay to determine their new basic pay.
Will the fitment factor increase in 8th Pay Commission?
As per Suma RV, Partner, Kochhar and Co., “The expected fitment factor is between 2.6 and 2.85 from January 1, 2026, under the 8th pay commission, which would likely increase the salary between 25% and 30%.”
At present, the fitment factor stands at 2.57, as per the 7th Pay Commission. Sharma expects that the new fitment factor could be in the range of 2.28 and 2.86. “If approved, this could increase the minimum basic pay from Rs 18,000 to as much as Rs 51,480, resulting in a significant salary hike for government employees.”
Says Alay Razvi, Managing Partner, Accord Juris, “the 8th Pay Commission is likely to recommend a fitment factor of 2.6 to 2.85, up from 2.57 in the 7th Pay Commission. This will amount to at least a 20-30% increase in basic salaries. If implemented at 2.8, the minimum basic salary could increase from Rs 18,000 to around Rs 50,000, benefiting millions of employees and pensioners.”
Will DA be merged into basic pay, reset to zero in the 8th Pay Commission?
There are reports that with the 8th Pay Commission, which will be implemented in January 2026, the DA is likely to be brought back to 0 and will be merged with the basic salary. However, it will continue to be adjusted biannually.
Experts note that the proposed panel (for the 8th pay commission) will present its recommendations by the end of the current financial year, anticipating a salary increase for employees and the potential merging of DA with basic salary.
“The changes are expected to be implemented through the Central Civil Services (Revised Pay) Rules, 2025, which will also take into account an increase in pension and other retirement benefits, including EPF and gratuity benefits,” explains Sharma.
