The government has announced a 3% hike in Dearness Allowance (DA) and Dearness Relief (DR) for central government employees and pensioners, effective from July 1, 2025. Union Minister Ashwini Vaishnaw made the announcement on Wednesday afternoon. This increase is intended to help employees and pensioners cope with rising inflation and the increasing cost of living.

Key Points:

• Effective Date: The hike is effective from July 1, 2025. Employees will receive arrears for the months of July to September along with their October salaries.
• Beneficiaries: The DA hike will benefit approximately 50 lakh central government employees and 65 lakh pensioners. Over 1 crore 15 lakh central employees and pensioners will be benefitted by this move.
• Revised DA Rate: With this latest increase, the DA will now be 58% of the basic pay and pension. This is up from 55% after a 2% increase earlier in March 2025. In March a two per cent increase was announced, taking DA payouts from 53 per cent of basic pay to 55 per cent.
• Financial Impact: The 3% increase in DA is expected to put an additional burden of approximately ₹10,000 crore on the government exchequer.
• Calculation: For an employee with a basic salary of ₹60,000, the hike will result in an additional ₹34,800 as DA, up from ₹33,000. If an employee's basic salary is ₹50,000, a 3% increase in DA will result in an additional ₹1,500 per month. On an annual basis, this amounts to a benefit of ₹18,000.
• Purpose of DA: DA is provided to government employees to compensate for inflation. The hike is expected to align with the movement of the Consumer Price Index (CPI) data for industrial workers, which is the basis for bi-annual revisions of the Dearness Allowance. DA and DR are adjusted biannually in January and July, based on the All India Consumer Price Index for Industrial Workers (CPI-IW) to counter inflation.

Seventh Pay Commission:

This is likely the final revision under the 7th Pay Commission, as its term is ending on December 31, 2025. The government has already announced the 8th Pay Commission in January 2025, with expectations for a new pay structure in 2026-27. Further revisions of salaries and allowances will be decided by the Eighth Pay Commission that was announced in January. The 8th Pay Commission is expected in January 2026.

The announcement has been welcomed by employee organizations. Some have termed it as the Modi government's 'Diwali gift'.