8th Pay Commission DA Merger: What's the big deal? Here's the full calculation for govt employees

Central government employees and pensioners are really pushing for one big thing with the 8th Pay Commission just around the corner: they want their Dearness Allowance (DA) to be merged with their basic salary.

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Merging Dearness Allowance with Basic Pay

Unions for central government employees and pensioners have put forward a major demand. They want the 8th Pay Commission to merge Dearness Allowance (DA) with basic pay to give them some relief from rising prices. With the 8th Central Pay Commission now preparing its report, employee unions are quite hopeful about this DA merger.

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What is Dearness Allowance?

So, what's this Dearness Allowance (DA)? It's a part of an employee's basic salary. It helps cushion the blow from rising living costs, or inflation. When the DA goes up, an employee's take-home salary increases, giving them relief. The government usually announces a DA hike twice a year: in March for the January-June period, and in September/October for the July-December period. They calculate it based on the All India Consumer Price Index (AICPI-IW).

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Dearness Allowance (DA) Calculation

Under the 7th Pay Commission, they used this formula to calculate DA for central government employees: DA% = (Average AICPI for 12 months – 261.42) / 261.42 × 100. The number 261.42 in this formula was the 12-month average AICPI-IW for the base year 2016, which is when the 7th Pay Commission kicked in. This number acts as the baseline for calculating inflation.

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Increase from 58% to 60%

Back in April this year, the Modi government announced a 2% DA hike for central government employees and pensioners. This change pushed the DA from 58% to 60% of the basic salary. The first benefit is a higher take-home salary. More cash in hand means a better standard of living. Since the basic salary goes up, both the employee and the government will contribute more to the PF, making the retirement fund much bigger.

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Gratuity and DA

Things like Gratuity and Leave Encashment will also get a boost. This is because gratuity is calculated based on the DA. A higher basic salary could mean lakhs of rupees in extra benefits at retirement. This DA merger will apply to both current employees and pensioners. Since Dearness Relief (DR) will also be merged, the monthly pension amount will increase too.