The Union Cabinet, chaired by Prime Minister Narendra Modi, on Wednesday approved a 3% increase in dearness allowance (DA) for central government employees and pensioners, effective July 1, 2025. The move, coming ahead of the festive season, is expected to benefit nearly 1.18 crore people, including 49.19 lakh serving employees and 68.72 lakh pensioners.
According to an official statement, the revision raises the DA and Dearness Relief (DR) rates from the existing 55% to 58% of basic pay and pension. “The Union Cabinet chaired by the Prime Minister Shri Narendra Modi today has approved to release an additional instalment of Dearness Allowance (DA) to Central Government employees and Dearness Relief (DR) to pensioners w.e.f 01.07.2025 representing an increase of 3% over the existing rate of 55% of the Basic Pay/Pension, to compensate against price rise,” the government said.
The decision is based on the recommendations of the 7th Central Pay Commission and is linked to changes in the All India Consumer Price Index for Industrial Workers (CPI-IW), which reflects inflationary trends. The additional outlay on account of the hike will put an annual burden of approximately ₹10,084 crore on the exchequer.
Dearness allowance is a critical component of government salaries and pensions, meant to cushion employees and retirees against inflation and rising living costs. It is revised twice a year, typically in January and July, to adjust for movements in the cost-of-living index. The DA, along with basic pay, house rent allowance (HRA), and transport allowance, forms a significant part of government employees’ take-home pay. On average, DA accounts for nearly one-third of an employee’s total salary.
Officials said the increase would provide timely relief to employees and retirees grappling with higher household budgets due to food and fuel inflation. The festive timing of the announcement is also expected to add momentum to consumer spending in the economy, as beneficiaries see a rise in disposable income.
With this latest revision, central employees and pensioners will see their DA and DR move to 58% of basic pay and pension. The Finance Ministry is expected to issue formal orders soon, after which the revised payments, including arrears from July, will be credited.
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