Central government employees and pensioners may have to settle for a modest raise in their pay packets in the new year. The Dearness Allowance (DA) and Dearness Relief (DR) revision for serving employees and pensioners due from January 1, 2026, is likely to be just 2 percentage points, taking DA from 58% to around 60%.
If this happens, it will be the lowest DA hike in more than seven years – a repeat of the 2% increase seen in January 2025.
Why this DA hike is special
This January 2026 DA revision is not just another routine hike. It is important for three big reasons:
First DA hike outside the 7th Pay Commission cycle
The 7th Pay Commission’s 10-year term ends on December 31, 2025. The DA from January 2026 will be the first revision after the commission’s term ends.
8th Pay Commission still a work in progress
The 8th Pay Commission has been set up, but its Terms of Reference (ToR) do not mention any clear implementation date. The commission has 18 months to submit its report. After that, it typically takes around 2 more years to study, approve and implement the new pay scales.
So realistically, employees may see 8th Pay Commission pay hikes only by late 2027 or early 2028.
DA in January 2026 will help shape future basic pay
When the 8th Pay Commission is finally implemented, the DA at that time is usually merged into basic pay, and DA starts again from zero. That means the next four DA hikes (January 2026, July 2026, January 2027, July 2027) will decide how high your revised basic pay will be in the new pay matrix.
So even though the January 2026 DA hike may be just 2%, it still plays a crucial role in the long-term salary structure.
Employees’ concern: What about the 8th Pay Commission date?
In earlier pay commissions, the pattern was more or less clear:
The 6th Pay Commission ended on December 31, 2015.
The 7th Pay Commission recommendations were implemented from January 1, 2016 (with retrospective effect).
This time, however, things are different. The 8th CPC ToR does not state from which date its recommendations will be implemented.
During the ongoing Winter Session of Parliament, the government was asked whether the 8th CPC would be implemented from January 1, 2026, but there was no clear, direct answer.
Because of this, unions and employees are worried: Will the new pay scales start immediately after December 31, 2025, or will there be a gap?
As of now, what looks almost certain is this – DA will continue under the current structure for the next few years, till the 8th CPC pay structure is finalised.
How DA is calculated
Dearness Allowance is meant to protect your salary from inflation. It is calculated using the All-India Consumer Price Index for Industrial Workers (AICPI-IW). For central government employees under the 7th Pay Commission, DA is broadly calculated using this formula:
DA% = (Average AICPI(12 months)–261.42)/261.42 × 100
(261.42 is the 7th CPC base index linked to AICPI with 2001=100)
The index numbers for 12 months (July to June or January to December) are added up, averaged, and then plugged into the formula.
DA is revised twice a year: January and July. For the January 2026 DA hike, the government will use AICPI-IW data from July 2025 to December 2025.
What the latest CPI-IW data is telling us
The Labour Bureau has released AICPI-IW numbers up to October 2025. The index has been rising steadily:
July 2025: 146.5 (up 1.5 points)
August 2025: 147.1 (up 0.6 points)
September 2025: 147.3 (up 0.2 points)
October 2025: 147.7 (up 0.4 points)
This means the index has increased for four consecutive months, signalling continued inflationary pressure.
The DA currently stands at 58% (from July 2025). Based on the data till October and possible trends for November and December, the expected DA from January 2026 is moving towards around 60%.
January 2026 DA hike: Two scenarios – same 2% hike
To understand why the DA hike is likely to be just 2%, let’s look at two simple scenarios based on the CPI-IW pattern for November and December 2025.
Scenario 1: Index remains flat at 147.7 in November and December (a conservative assumption – given recent rises, it is less likely, but useful to test the lower bound)
| Month | CPI-IW (2016=100) | 12-Month Avg Index | DA % (7th CPC) | Remarks |
| July 2025 | 146.5 | 414.42 | 58.53% | – |
| August 2025 | 147.1 | 415.5 | 58.94% | – |
| September 2025 | 147.3 | 416.42 | 59.29% | – |
| October 2025 | 147.7 | 417.17 | 59.58% | – |
| November 2025 | 147.7 | 417.92 | 59.86% | Expected |
| December 2025 | 147.7 | 418.83 | 60.21% | Expected |
If CPI-IW stays at 147.7 for both November and December,
The 12-month average index for DA calculation moves only a little higher.
Under the 7th CPC formula, the DA for January 2026 comes to about 60.21%.
Since DA is rounded to the nearest whole number, this translates into 60% DA.
So, DA rises from 58% to 60% – a 2 percentage point hike.
Scenario 2: Index rises by 1 point each in November and December (now, taking a more optimistic assumption)
| Month | CPI-IW (2016=100) | 12-Month Avg Index | DA % (7th CPC) | Remarks |
| November 2025 | 148.7 | 418.17 | 59.96% | Expected |
| December 2025 | 149.7 | 419.58 | 60.50% | Expected |
November 2025: index rises to 148.7
December 2025: index rises to 149.7
With this, the average index for the year improves further, and the DA calculation throws up a figure of about 60.50%.
But again, because of rounding rules, this is also rounded off to 60% DA.
Result: Still a 2% hike, from 58% to 60%.
Why only 2% despite rising inflation?
The key reason is mathematical and structural:
The CPI-IW is rising, but not sharply enough to push the DA into the next whole percentage after rounding.
Both a flat index and a mildly rising index are falling within the same DA band. As a result, even with inflation creeping up, the DA hike gets capped at 2 percentage points in January 2026. In other words, inflation is rising, but not fast enough to give a 3% DA jump.
Lowest DA hike in 7 years – what does that mean for you?
Since January 2019, there has been only one other occasion when DA was hiked by just 2% – in January 2025. Most other hikes have been 3% or higher, especially when inflation was stronger. So, if the January 2026 DA hike is indeed limited to 2%, it will match the lowest hike in the last seven years, and come at a time when employees were hoping for stronger relief ahead of the 8th Pay Commission.
To put it in simple numbers:
Suppose your basic pay is Rs 50,000.
At 58% DA, you get Rs 29,000 as DA.
At 60% DA, your DA goes up to Rs 30,000.
So, the increase is Rs 1,000 per month before tax.
This is helpful, but not a big leap, especially if your household expenses have risen sharply.
Why the next 4 DA hikes matter even more
Even though this one hike may look small, the bigger picture is important:
These DA hikes will shape your future basic pay under the 8th CPC.
When the new pay commission is implemented, the then-prevailing DA will likely be merged with basic. So a higher DA level at that time means a stronger jump in basic pay.
From January 2026 till late 2027 or early 2028, we may see at least four DA revisions: January 2026, July 2026, January 2027 and July 2027
Each of these revisions will gradually lift the DA level, which eventually becomes part of your revised pay structure. So, even if January 2026 starts with a modest 2% increase, the cumulative rise over the next few revisions will matter a lot.
Uncertain allowances under 8th CPC
One more point of uncertainty comes from the Terms of Reference of the 8th Pay Commission. The government has specifically asked the commission to review the existing allowances given to employees and pensioners.
This means we do not yet know exactly how DA and other allowances will be structured under the new regime. So while a higher DA in January 2026 could support a better pay fitment, the final impact will depend on what the 8th CPC recommends — and what the government finally approves.
Summing up…
DA/DR from January 2026 is likely to increase by around 2 percentage points, from 58% to about 60%. This will be one of the smallest hikes in seven years, even as inflation continues to put pressure on household budgets. The January 2026 DA level will be a key input for the 8th Pay Commission when it decides the new pay structure. With the 8th CPC report and implementation still some distance away, employees will have to watch each DA hike closely over the next few years.