Dearness Allowance Hike: How To Calculate DA for Central Government Employees and Pensioners

Dearness Allowance (DA) for central government employees and Dearness Relief (DR) for pensioners are linked to inflation and are revised twice a year. The latest revision increased DA by 2 percentage points to 60% of basic salary, effective January 1, 2026. Employees and pensioners are now awaiting clarity on whether a second hike will be announced later this year.

The calculation is based on the 12-month average of the All India Consumer Price Index for Industrial Workers (AICPI-IW), following the formula recommended by the 7th Central Pay Commission. More than one crore central government employees and pensioners, including defence and railway personnel and retirees, benefit from DA and DR revisions. 8th Pay Commission: Central Government Teachers Demand Old Pension Scheme, Pay Parity And Retirement Age Hike.

How Is DA Calculated?

DA hikes are calculated using the 12-month average of the Labour Bureau's AICPI-IW. The index tracks changes in the prices of goods and services consumed by industrial workers and is used as an indicator of inflation for the purpose of the allowance.

For central government employees, the formula is:

DA percentage = [(Average of AICPI (Base Year 2001 = 100) for the last 12 months – 261.42) / 261.42] × 100

For public sector employees, the formula is based on the three-month average:

DA percentage = [(Average of AICPI (Base Year 2001 = 100) for the last three months – 126.33) / 126.33] × 100

How the Latest 2% DA Hike Was Calculated

The latest 2% increase, announced in April 2026, took DA from 58% to 60% of basic salary, with effect from January 1, 2026. According to the calculation cited by Mint, the resulting figure was 60.39%, which was rounded down to 60%.

The calculation was:

DA percentage = (145.54 × 2.88 − 261.33) / 261.33 × 100

= (419.155 − 261.33) / 261.33 × 100

= 157.825 / 261.33 × 100 = 60.39%

This was rounded down to 60%, resulting in a 2 percentage-point increase from the earlier 58% rate.

Why Are Employees Seeking a Change in the Formula?

Employee groups have raised concerns about whether the existing formula adequately reflects the actual cost of living.

The All India Defence Employees’ Federation (AIDEF), in a memorandum to the 8th Pay Commission, has sought changes to the way DA is calculated. It has argued that the current index does not sufficiently capture the inflation pressures faced by households. 8th Pay Commission: Will Salaries Double? Fitment Factor, DA Merger and 7-Year Salary Growth Explained.

AIDEF has pointed to the composition of the AICPI basket, arguing that food and beverages account for 36.75% of the index while categories such as healthcare, housing, transport, communication and digital services have significant weightage.

The federation has also argued that lower-paid employees devote a larger share of their income to food, education, healthcare, rent, medicines and other essential expenses, whose prices can rise faster than overall CPI inflation.

Demand for a New Cost-of-Living Index

AIDEF has called for an overhaul of the existing index and proposed an employee-specific cost-of-living index.

The proposed approach would give greater weight to changes in household expenditure and account more adequately for elderly-care expenses when pay and pension revisions are considered under the 8th Pay Commission.

Will There Be Another DA Hike in 2026?

A second DA hike in 2026 had been expected by employees and pensioners, with some estimates pointing to a possible increase of 3-4%. However, the final revision will depend on the latest AICPI-IW data and approval from the Centre.

With July already past, a second revision could still be announced in the second half of the year. The previous two years have seen DA announcements around the festive period, including a 3% hike announced in October 2025.

With Diwali falling in November this year, employees and pensioners could therefore see a DA announcement in October or November. However, there is no confirmed second hike yet.

(The above story first appeared on LatestLY on Aug 09, 2026 07:29 PM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).