In a move that promises festive cheer for government employees and pensioners, the central government is reportedly set to approve a 3 percent hike in Dearness Allowance (DA). Sources indicate that the Union Cabinet is likely to give the nod soon, with the increase taking retrospective effect from July 1, 2025.

This will be the second DA increase in 2025, following a 2 percent hike in March, which raised DA from 53 percent to 55 percent of basic pay. With the new hike, DA will climb to 58 percent, offering much-needed relief from inflation ahead of Dussehra and Diwali.

Dearness Allowance is a component of salary designed to shield employees from rising prices and is revised twice a year based on the Consumer Price Index (CPI) for industrial workers.

For instance, an employee earning a basic salary of Rs 60,000 currently receives Rs 33,000 as DA (at 55 percent). With the proposed 3 percent increase, DA will rise to Rs 34,800, adding an extra Rs 1,800 per month to take-home pay.

While the hike is timely, larger changes are on the horizon with the Eighth Pay Commission, announced earlier this year in January. Official notification regarding its members and Terms of Reference (ToR) is still awaited.

Once implemented—expected from January 1, 2026—the Pay Commission may reset DA to zero and merge it with basic pay, following the pattern of the 7th Pay Commission. Experts estimate that the final salary increase, based on the fitment factor, could range between 13 percent and 34 percent, offering employees a substantial boost in earnings.