Dearness allowance (DA) and dearness relief (DR) is a percentage of the basic salary component for central government employees and pensioners, aimed at mitigating inflation impact. According to reports from Mint, DA is part of an employee's cost-to-company (CTC) and credited as part of monthly salary. Payment involving fractions of 50 paise and above may be rounded off to the next higher rupee, while fractions of less than 50 paise may be ignored. As part of CTC or pension payout, DA is subject to income-tax in its entirety and taxed as per applicable income slab rate. Taxpayers are required to report DA separately in their income tax returns (ITR) as per tax rules.
DA was officially raised by 2% in April, taking it from 58% to 60% of basic salary, effective from 1 January 2026. According to Mint reports, the Indian Banks' Association (IBA) announced revised DA and DR for workmen and officer employees across levels for May, June and July 2026. Indian Railways also announced a 2% DA and DR hike for its personnel. Since then, multiple state governments have increased DA and DR to close payment gaps with the central government. Employees and pensioners were expecting a 3-4% DA hike in July based on Labour Bureau's All India Consumer Price Index for Industrial Workers (AICPI-IW), though no announcement materialized.
Beneficiaries include more than 1 crore workers — about 50 lakh central government employees and around 65 lakh pensioners, including defence and railway personnel and retirees. As reported by Mint, announcements typically come in March and October with rollouts in July and January respectively. The 8th Central Pay Commission (8th CPC) is in consultation stage, examining changes in emoluments including pay, allowances, and other facilities. The panel is expected to announce recommendations within 18 months since constitution (on 3 November 2025), with the absolute deadline being May 2027.
Based on past trends, once the commission's recommendations are out, rollout takes another two to three years to complete, meaning hikes could be fully implemented only by 2029 or 2030. According to Mint reports, beneficiaries could expect a 'Diwali gift' sometime in October or November this year, with the festival being celebrated on 8 November 2026. The commission is examining changes in emoluments including pay, allowances, and other facilities, having regard to rationalisation and contemporary functional requirements.
