Dearness Allowance (DA) for central government employees was hiked by 2% last month, effective from 1 January 2026, in accordance with the 7th Central Pay Commission (CPC). The raise increased DA from 58% of basic pay to 60%.
DA is a percentage of the basic salary of central government employees’ (including railways and defence personnel and retirees), which aims to counter inflation impact on households. It increases the take-home pay for these employees.
The component is usually reviewed twice a year by the All-India Consumer Price Index (AICPI), with fresh hikes or cuts announced in early March and October and rollouts in January and July. Overall, the 7th CPC has had 10 hikes since 2021 — the highest at 11% in July 2021; while the latest increments of 2% and 3%, respectively, in January and July 2025.
Who benefits from Dearness Allowance hikes?
DA is usually provided by the central government for its employees and pensioners. It is not usually offered by the private sector in India.
As many as 50 lakh central government employees and around 65 lakh pensioners (both including from the armed forces and railways), benefit from DA hikes. Notably, there are 18 levels of employees, and individual hikes will depend on the employee’s or pensioner’s level, as their basic pay differs from level to level.
How does DA for pensioners work?
- According to Clear Tax, retired central government employees eligible for individual or family pension from the government are known as pensioners.
- These pensioners will see change reflected in their payout every time the pay commission revises salary structure (dearness allowance, fitment factor, etc.).
- For central government pensioners, DA is granted on a time scale or fixed pay basis and is waived if they are re-employed. There are certain exceptions, but this means that DA is then limited to their last drawn pay, the report added.
- Further, DA can be stopped for a pensioner who resides in a foreign country during re-employment. (This does not apply to non-employed pensioners living abroad).
What is the likely revision to pension payouts?
Besides salary hikes for employees, pension payouts for retired central government employees are also likely to increase proportional to the new basic pay structure likely to be announced by the 8th CPC.
Expectations are that the minimum pension of ₹9,000 could see significant increase somewhere between ₹22,500-25,200 depending on the final fitment factor and changes incorporated by the panel.
Is Dearness Allowance part of CTC? Is it subject to income tax?
DA is part of an employee’s cost-to-company (CTC) and is credited to the monthly salary of central government employees. As per the ministry, payments on account of DA involving fractions of 50 paise or more may be rounded off to the next higher rupee, and fractions of less than 50 paise may be ignored.
DA for salaried employees is subject to income tax in its entirety. Income-Tax Rules mandate that the component is stated separately in a taxpayer’s I-T returns (ITR).
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
