The Formula Produced 63.77%. The Cabinet Approved 63.

The index said 63.77. The order says 63.

The Union Cabinet, chaired by the Prime Minister, approved an additional instalment of dearness allowance on Wednesday. It runs to 3% over the existing rate of 60% of basic pay, takes effect from 1 July 2026, and costs the exchequer ₹10,016.10 crore a year. Around 48.54 lakh central government employees and 68.71 lakh pensioners are covered, which is about 1.17 crore people between them.

Those are the government’s figures, and they have been reported accurately almost everywhere. What has not been reported is where the 3 came from, and what was left behind when it was rounded off.

What the Cabinet actually approved

The release is four sentences long. It approves the release of an additional instalment of dearness allowance to central government employees and dearness relief to pensioners with effect from 1 July 2026, “representing an increase of 3% over the existing rates of 60% of the Basic Pay/Pension, to compensate against price rise”. It gives the combined cost as ₹10,016.10 crore per annum. And it says the increase is “in accordance with the accepted formula, which is based on the recommendations of the 7th Central Pay Commission”.

Two things in that are worth slowing down on. The first is the date. The decision was taken on 28 October, but the money is owed from 1 July, which means four months of it has already accrued and has not been paid. The second is the phrase about the accepted formula. The government does not publish the calculation. It publishes the result and names the formula, and the formula is public, so the calculation can be redone from outside.

What dearness allowance is for

Dearness allowance exists because basic pay is fixed for years at a time and prices are not. A pay commission sets a pay matrix roughly once a decade. Between those revisions, the government does not reopen basic pay. It pays a separate allowance on top, recalculated every six months against a price index, so that the real value of a salary does not erode while the matrix stands still. Pensioners get the same mechanism under a different name, dearness relief, applied to basic pension.

Two instalments are issued a year, one effective 1 January and one effective 1 July, and both are announced some months after they take effect. The allowance applies across central government service, which includes civilian ministries, the railways, and defence personnel, though the armed forces have some separate allowances of their own.

The important structural point is that dearness allowance is not a bonus or a discretionary award. Once the index is published, the rate is arithmetic. What the Cabinet approves is the release of a figure the formula has already determined, which is why these decisions are announced rather than debated.

Checking the number the government did not show

Dearness allowance under the 7th Central Pay Commission is not a negotiated figure. It is the output of a formula that runs on the All India Consumer Price Index for Industrial Workers, which the Labour Bureau publishes monthly. The rate for an instalment starting 1 July is set by the twelve monthly readings from the previous July to the June just gone.

The formula takes the twelve-month mean of the index, converts it from the current 2016=100 base to the older 2001=100 base using a linking factor of 2.88, and measures how far that sits above 261.42, the level at which the 7th CPC pay matrix was set. Written out: DA% = [(twelve-month mean × 2.88) − 261.42] ÷ 261.42 × 100.

The twelve readings from July 2025 to June 2026 run 146.5, 147.1, 147.3, 147.7, 148.2, 148.2, 148.6, 148.5, 149.1, 149.9, 150.8 and 151.9. They average 148.65. Multiplied by 2.88 that is 428.11. Subtract 261.42 and you get 166.69. Divided by 261.42, expressed as a percentage, that is 63.77%.

The announced rate is 63%. The fraction is dropped rather than rounded, which is long standing practice and not a departure from anything. Had the figure been rounded in the ordinary way it would have been 64%.

Before putting weight on that, we ran the same method on the previous instalment. The twelve readings for January to December 2025 average 145.54, which the formula turns into 60.34%. The rate actually announced for 1 January 2026 was 60%. The method reproduces the government’s own published result exactly, which is the reason we are willing to publish 63.77% for this one.

One caveat belongs here rather than in a footnote. The monthly index values above come from trackers that mirror the Labour Bureau’s releases, not from the Bureau’s own press notes, and the December 2025 reading is given as 148.2 by most of them and 148.6 by one. We ran it both ways. The first gives 63.77% and the second 63.80%. Both drop to 63, so the discrepancy does not change anything here.

What the dropped fraction is worth

The Cabinet put the cost of 3 percentage points at ₹10,016.10 crore a year. That single figure is more useful than it looks, because dearness allowance is a flat percentage of basic pay. Divide it by three and one percentage point of DA and DR costs about ₹3,338.70 crore a year.

The 0.77 of a point that was dropped is therefore worth roughly ₹2,560 crore a year, spread across 1.17 crore people. It is not withheld, and it is not lost: fractions carry forward inside the index, so the shortfall tends to resurface in a later instalment rather than disappear. But in the year beginning 1 July 2026 it is money the formula generated and the order does not pay.

The same per-point figure opens up two numbers the release does not state. At 63%, the annual DA and DR bill is on the order of ₹2.10 lakh crore. And since one point costs ₹3,338.70 crore, the basic pay and pension bill those percentages run on is around ₹3.34 lakh crore a year. Both are our arithmetic from the government’s own cost figure, not official numbers, and they assume the cost scales evenly, which is how a flat percentage behaves.

There is a third. Spread ₹10,016.10 crore across 1.17 crore beneficiaries and 3% of basic works out at about ₹712 a month each, which implies an average basic pay or basic pension of roughly ₹23,700 a month across the whole group. That average is pulled down by pensioners, whose basic pension generally starts at half of final basic pay, and it is a reminder that most of the people in this decision are nowhere near the senior pay levels.

What it is worth in your hand

Dearness allowance is calculated on basic pay alone, not on gross salary, and dearness relief on basic pension alone. So the increase is simply 3% of the basic figure on your pay slip. The table below runs the entry pay for a spread of levels in the 7th CPC pay matrix, along with the arrears that will have built up by the end of October.

The spread is the point. At the bottom of the matrix the instalment is worth about ₹540 a month. At the top it is ₹7,500. A flat percentage on an unequal base produces unequal amounts, and across every instalment since 2016 that gap has compounded.

Why a 3% hike is not a 3% pay rise

This is the part that gets misread most often, and the headline wording encourages it. The increase is 3 percentage points of basic pay. It is not a 3% increase in what you are paid.

Take someone on a basic of ₹50,000. Before this instalment they drew basic plus 60% DA, which is ₹80,000. After it they draw basic plus 63%, which is ₹81,500. The extra ₹1,500 is 3% of basic, but measured against the ₹80,000 they were already getting it is a rise of 1.875%.

That ratio holds at every pay level, because both sides scale with basic. Any move from 60% to 63% is a 1.875% increase in basic plus DA, whether the basic is ₹18,000 or ₹2,50,000. And because DA is now a large number, each further point adds proportionally less: the same 3 points were worth a 6% rise back when DA stood at 50%, and will be worth less again next time.

None of that makes the increase smaller than it is in rupees. It does mean that a reader who sees “3% DA hike” and expects their take-home to move by 3% will be disappointed, and that the real figure gets quieter with every instalment.

The increase reaches further than the salary slip. Dearness allowance counts as part of “wages” for several retirement calculations, which is why a DA revision quietly changes the value of benefits that are worked out on basic plus DA, including the gratuity formula and what it treats as wages. For pensioners under the Unified Pension Scheme the mechanism is more direct still, since dearness relief is added on top of the assured UPS payout at whatever rate is in force.

What this does not change

House rent allowance is the question that follows every DA revision, and the answer this time is that nothing moves. The Department of Expenditure memorandum of 7 July 2017 set HRA at 24%, 16% and 8% of basic pay for X, Y and Z class cities, with two built-in revision points: the rates would rise once DA crossed 25%, and again once it crossed 50%. Both have been passed. HRA went to 30%, 20% and 10% when DA crossed 50% at the start of 2024, and no further trigger was set above that. DA moving to 63% leaves those rates where they are.

One linked threshold does still exist, further off. The 7th CPC recommended that the gratuity ceiling rise by 25% each time DA rises by 50 percentage points, which is how the retirement gratuity ceiling for central government employees went from ₹20 lakh to ₹25 lakh with effect from January 2024. On that rule the next step does not arrive until DA reaches 100%, so at 63% it is a long way away.

Nor does this decision reach state government employees. Each state sets its own dearness allowance for its own staff, usually tracking the central rate but often several instalments behind, and a state announcement has to come separately. Employees of public sector undertakings sit on a different system again, with industrial dearness allowance revised quarterly rather than twice a year.

One more thing worth noting about the timing. The gap between the effective date and the announcement is not administrative slowness. The July instalment needs the June index reading, the Labour Bureau publishes each month’s figure about a month in arrears, and the Cabinet then has to approve it. A gap of three to four months is the normal shape of this decision, which is why arrears are a routine feature of it rather than a sign that something went wrong.

Thirteen points in two and a half years

Five increases, thirteen points, and the rate is now within striking distance of two-thirds of basic pay. That is what a pay matrix frozen in 2016 looks like after a decade of prices moving: an allowance meant to top up basic pay is now worth nearly two-thirds of it.

The pattern of 2 points in January and 3 in July that has held through 2025 and 2026 is not a rule. It is what the index happened to produce. The January instalment is set by the calendar year’s readings and the July one by a July-to-June window, and both simply follow prices.

Why this instalment sits under a shadow

The 8th Central Pay Commission is already at work. Its terms of reference were approved by the Cabinet in October 2025 and it is chaired by Justice Ranjana Prakash Desai, a former Supreme Court judge. It has been holding stakeholder hearings around the country through 2026, and on an eighteen-month clock its report is expected around the middle of 2027.

That matters for dearness allowance in a way that is easy to miss. When a new pay commission is implemented, the existing DA is absorbed into a revised basic pay and the allowance restarts from zero against a new index base. The 63% being approved now is not a permanent gain sitting on top of a permanent basic. It is a measure of how far the 2016 pay matrix has drifted from current prices, and it is the gap the next commission will be asked to close when it sets a fitment factor.

What that factor will be is not known. Figures circulating online are guesses, no pay matrix has been published, and the commission has not announced a date of effect. The 1 January 2026 date that appears in much of the coverage is a reference point people have latched onto, not a decision anyone has taken.

Where this leaves the pay slip

For most of the 1.17 crore people in this decision, the practical effect is a few hundred to a couple of thousand rupees more a month, plus a one-time arrears credit that will be taxed in the month it lands. That is worth knowing precisely rather than approximately, which is why the table above runs the actual numbers rather than describing the increase as significant and leaving it there.

The larger thing the figures show is how much of central government pay now travels outside basic pay. Nearly ₹2.10 lakh crore a year moves through an allowance that recalculates every six months against a price index, and a two-decimal result gets cut to a whole number each time it does. For an individual the dropped fraction is small enough to ignore. Across 1.17 crore people it came to roughly ₹2,560 crore this time, and that is the part of the decision that never appears in the release.