Business: In a festive boost ahead of Diwali, the Union Cabinet, headed by Prime Minister Narendra Modi, approved a 3 per cent hike in the Dear Allowance (DA) for central government employees and pensioners, benefiting over 10 lakh individuals. The DA will increase from 50 per cent of basic salary to 53 per cent, effective July 1, 2024, inclusive in July, August, and September.

An entry-level employee earning Rs 18,000 per month will see an additional Rs 540 as take-home pay. The delay in DA revisions, which are usually announced twice a year, caught the attention of employee unions, which urged Finance Minister Nirmala Sitharaman to expedite the decision.

The DA increase has been calculated based on the All India Consumer Price Index (AICPI) and is meant to provide protection against inflation, easing the financial pressure on employees and pensioners.

Pensioners to benefit from dearness relief

As serving employees receive DA, pensioners will see a corresponding 3% increase in Dearness Relief (DR), reflecting the DA increase. The latest change, a 4% increase, was announced in March 2024, and took effect in February, increasing both DA and DR to 50% of basic pay and pensions.

Financial impact on 1.15 crore people

The latest hike is set to benefit about 1.15 lakh central government employees and pensioners, which will help offset the rising cost of living. DA is an integral part of salaries, which is periodically adjusted to help employees maintain their purchasing power through price reductions.

DA calculation formula under the 7th Pay Commission

The DA is calculated based on the Consumer Price Index for Industrial Workers (CPI-IW) published monthly by the Labor Department of the Ministry of Labor. The method of calculation of DA under Pay Commission is:

7th CPC DA% = [{12-month average of AICPI-IW (Base Year 2001=100) for the last 12 months – 261.42}/261.42x100]. Typically, any DA or DR increase is applied retroactively from January 1 and July 1 each year. This July hike has been declared ahead of the festive season, offering timely support to employees and pensioners alike.