The central government has increased Dearness Allowance (DA) for central government employees by 3 percentage points, taking the rate from 60% to 63% under the 7th Pay Commission. The revised rate is effective from July 1, 2026, according to a report by Times Now Navbharat.

The decision also raises a key question for employees and pensioners: Will the government merge DA with basic pay under the upcoming 8th Pay Commission, or will the allowance continue under the existing system?

The latest DA increase is expected to benefit around 49 lakh central government employees and 69 lakh pensioners. The additional annual financial burden on the government is estimated at ₹10,016 crore, according to the report.

DA Hike to 63%: What Central Government Employees Need to Know

The latest revision increases the inflation-linked allowance paid to eligible central government employees. Pensioners receive a corresponding benefit through Dearness Relief (DR), which is revised periodically to help offset the impact of rising living costs.

The 3-percentage-point increase applies to employees covered by the 7th Pay Commission. Employees and pensioners covered by older pay commission structures have also received separate revisions, according to the report.

For employees, the financial impact depends on their basic pay. Since DA is calculated as a percentage of basic pay, those with higher basic salaries receive a larger allowance in rupee terms.

Will DA Be Merged With Basic Pay Under the 8th Pay Commission?

The possibility of merging DA with basic pay has become an important issue as preparations for the 8th Pay Commission continue. Employee associations have called for changes that could improve salary structures and provide a stronger financial base for future allowance calculations.

However, an increase in DA does not automatically mean that the allowance will be merged with basic pay. Under the existing 7th Pay Commission system, there is no automatic merger simply because DA crosses the 50% threshold.

In a written reply to the Lok Sabha in December 2025, the Finance Ministry stated that no proposal to merge existing DA with basic pay was under consideration at that time. Any change would therefore require a separate government decision.

The government has constituted the 8th Central Pay Commission to review pay, pensions and related service conditions. The commission has been given 18 months from its constitution to submit its recommendations.

Whether DA will be merged with basic pay, and how the new salary structure will be calculated, remains subject to the commission’s recommendations and the government’s decisions.

How DA Merger Could Affect Salary Calculations

A merger would change the composition of an employee’s salary by adding the eligible DA amount to basic pay. If such a change were approved, future allowances and certain salary-linked benefits could be calculated using the revised basic pay, depending on the rules announced by the government.

For example, consider an employee with a basic salary of ₹40,000. At a DA rate of 63%, the allowance would amount to ₹25,200 per month, making the combined basic pay and DA ₹65,200 before other allowances and deductions.

This example illustrates the current calculation of basic pay plus DA; it does not mean that the government has approved a merger. Under a hypothetical merger, the treatment of existing DA and future salary components would depend on the final rules.

Employees should also distinguish between a DA increase and changes to House Rent Allowance (HRA), pension benefits or gratuity limits. These components are governed by their applicable rules and should not be assumed to change automatically in every case.

What Employees Should Watch for in the 8th Pay Commission

The 8th Pay Commission will examine the salary and pension structure for central government employees and pensioners. Its recommendations are expected to address several factors, including economic conditions, government finances and existing compensation arrangements.

Employee unions are seeking a revised salary structure and a favorable fitment factor, which is used to calculate revised pay under a new pay commission. The final impact on take-home salary will depend on the recommendations accepted by the government.

For now, central government employees should rely on official notifications for confirmed changes to DA, basic pay and other allowances. Until a formal decision is announced, a DA merger under the 8th Pay Commission should be treated as a demand or possibility, not an approved benefit.