Millions of central government employees and pensioners may soon receive relief from rising inflation. The government is expected to announce a 3% increase in Dearness Allowance (DA) and Dearness Relief (DR) based on the latest inflation-linked data.

After the hike, DA could rise from the existing 60% to 63% from July 2026, increasing the monthly salary of employees and pension amounts of pensioners. But how is DA calculated, and how is the final percentage decided? Let’s understand the complete process.

How Is Dearness Allowance Calculated?

DA is not decided randomly. It is calculated through a fixed formula based on the All India Consumer Price Index for Industrial Workers (AICPI-IW) released by the Labour Bureau.

For central government employees, the calculation is based on the average AICPI-IW data of the previous 12 months.

The formula used is:

DA% = [(12-month average AICPI-IW (2001 base) ÷ 261.42) × 100]

Since the current AICPI-IW series uses 2016 as the base year, the index value is converted to the 2001 base by multiplying it by 2.88 before applying the formula.

DA Calculation Explained With May 2026 Data

According to Labour Bureau data, the AICPI-IW index for May 2026 stood at 150.8.

The 12-month average index up to May 2026 was calculated at 148.075.

Calculation steps:

• Convert the index to the 2001 base:
  148.075 × 2.88 = 426.456

• Apply the DA formula:

  426.456 ÷ 261.42 × 100

• The calculated figure comes to around 163.13% on the converted basis

After applying government rounding rules, the DA figure is expected to be considered 63%.

Since DA was 60% in January 2026, employees may get a 3% increase from July 2026.

Impact on Salary and Pension

The actual benefit will depend on an employee’s basic pay.

For example, if an employee’s basic salary is ₹50,000:

• At 60% DA: ₹30,000
• At 63% DA: ₹31,500

The difference would be ₹1,500 per month before other allowances and deductions.

Similarly, pensioners receiving Dearness Relief will also see an increase after the official announcement.

What About the 8th Pay Commission?

Apart from the DA hike, employees are also waiting for updates on the 8th Pay Commission.

Experts believe that recommendations for revised pay structures may come later, while implementation could affect salaries from January 2026 if approved by the government.

Until then, DA calculations will continue under the 7th Pay Commission framework. If a new pay structure is introduced later, any difference between the old and new calculations may be paid as arrears.

When Will the DA Increase Be Announced?

The government revises DA twice every year:

• January 1
• July 1

Although the effective date is fixed, the official announcement usually comes later.

The July 2026 DA revision is expected to be formally announced around the festive season, possibly in October. After approval, employees may receive revised salaries along with pending arrears from the effective date.

The expected 3% DA hike could provide additional financial support to government employees and pensioners while helping them cope with inflation