Union Cabinet approved a 3% increase in dearness allowance and relief for 48 lakh central government employees and 68 lakh pensioners on Wednesday, Oct 28, 2025, moving the rate from 60% to 63% of basic pay, effective July 1, 2026.
Prime Minister Narendra Modi, who chaired the meeting, said the step would help staff cope with rising living costs as the Consumer Price Index for Industrial Workers climbed 0.4% month‑on‑month in June.
The hike follows the Seventh Pay Commission's formula, which sets the allowance at [(12‑month average AICPI‑IW × 2.88) – 261.33] ÷ 261.33 × 100, and reflects the commission's recommendation to keep wages in line with inflation.
Employees will see the adjustment reflected in their July pay slips, with arrears paid from the first of the month, and the change comes a week before Diwali, a key period for government staff who celebrate the festival at home and in the workplace.
The decision is expected to ease the financial burden on pensioners and employees alike, as the government prepares to roll out the revised allowances across all ministries and public sector undertakings.