Latest Update on DA: After the hike, a big update came on dearness allowance, DA will become 0 on this day

Digital Desk- ( Latest Update on DA) The merger of dearness allowance (DA) into basic pay for government employees has taken a surprising turn. While 60-61% of the DA was expected to be merged, sources and experts believe the government may only include 50% of the DA in basic pay.

If this decision is taken, the entire mathematics of employees' salaries and allowances will change. What is this new twist, and why might the government do this? Let's delve deeper into the matter.

What is the general expectation and where is the catch?

Employees are expecting their DA to reach approximately 61% by January 1, 2026. When the Eighth Pay Commission comes into effect, this entire 61% increase will be added to their basic pay, creating a larger "revised basic pay." This will then be subject to a fitment factor. However, the real story may be different.

Why only 50% DA merged, not 61%?

This angle is surprising, but some solid arguments are being given behind it. 1. The 'rule' of 50% dearness allowance An established rule states that whenever DA touches the level of 50%, it should be merged with the basic salary. 

DA had reached 50% in January 2024 itself, but the government did not merge it then. Experts believe that the government has deliberately withheld this merger for the 8th Pay Commission (8th pay commission latest news) and it may base this 50% benchmark on this, and not 61%. 2. 

Example of the 7th Pay Commission When the 7th Pay Commission (7th pay commission news) was implemented in 2016, the government had calculated the DA by merging the total DA at that time. Also, the base year was changed.

This had posed a financial burden on the government. However, this time, something different is being considered for the calculation. 3. The government's financial discipline is the biggest reason. 

If the government merges the entire 61% DA, the revised basic pay of employees will increase significantly. Allowances like HRA and TA will also increase proportionately on top of this increased basic pay, which will put a significant burden on the government treasury. By merging just 50% of the DA, the government can control this financial burden to a large extent.

How much will it affect your pocket?

Let us see from a comparative table that if 61% DA is merged and if only 50% DA is merged, then how big will be the difference in your revised basic pay, on which the fitment factor will be applied later. 

Current Basic Pay Scenario A: 61% DA merger (Employees' expectation) Scenario B: 50% DA merger (Government's likely move) Difference (Impact on your pocket) ₹30,000 ₹30,000 + ₹18,300 = ₹48,300 ₹30,000 + ₹15,000 = ₹45,000 ₹3,300 less ₹50,000 ₹50,000 + ₹30,500 = ₹80,500 ₹50,000 + ₹25,000 = ₹75,000 ₹5,500 less ₹80,000 ₹80,000 + ₹48,800 = ₹1,28,800 ₹80,000 + ₹40,000 = ₹1,20,000 ₹8,800 less This difference is only in the revised basic pay. When a fitment factor of 1.92 or more is applied to this, the difference in final salary will become even larger.

Is changing the base year a part of this 'game'?

There's another important angle to this story: the change in the base year. Currently, the base year for calculating DA is 2016 = 100. It's highly likely that the government will change the base year to 2026 = 100 with the implementation of the 8th Pay Commission. 

If the base year is changed, the entire method of calculating dearness allowance will be reset. In this case, there will be no technical basis for merging 61% DA, making it easier for the government to argue that merging the 50% benchmark is a fresh start.

What is the government's 'masterplan'? Will the base year change?

Dearness Allowance (DA) is calculated based on data from the Consumer Price Index for Industrial Workers (AICPI-IW). This index has a base year against which inflation is compared. 

Currently, the base year for DA calculations is 2016. This was set when the Seventh Pay Commission was implemented. 

Now, with the Eighth Pay Commission scheduled to be implemented on January 1, 2026, the government may change the base year for DA calculations to 2026. 

Changing the base year is like resetting the score of a game. When the base year is new, the calculation of dearness allowance also starts afresh, i.e., from zero.

Why is the base year being changed?

Over the past decade, people's spending patterns, their needs, and the nature of inflation have completely changed. The things we spend on today are very different from those in 2016. Therefore, updating the base year is essential to accurately assess inflation and provide real benefits to employees.

What will change in DA calculation?

Let us understand from a table what will be the difference between the current system and the new possible system. Parameter 7th Pay Commission (current system) 8th Pay Commission (probable system) Base year of DA 2016 2026 (probable) What happened to the old DA? 125% DA was merged in the basic salary. 60-61% (estimated) DA will be merged in the new basic salary. DA started from 0%. 

Will start from 0%. Calculation based on 2016 prices. Based on 2026 prices. End result Basic salary increased, total salary increased. New basic salary will increase even more, there will be a big jump in total salary.

How will this work?

1. Step 1 - Merger By January 1, 2026, your dearness allowance (DA Hike News) will have reached approximately 60-61%. Once the 8th Pay Commission is implemented, 50% of this DA will be added to your current basic salary. 

This will create your 'new basic salary,' which will be significantly higher than before. 2. Step 2 - Reset Once the old DA is added to your basic salary, the DA counter will be reset to 0%. Any dearness allowance increase after this will be calculated on this new and increased basic salary. 

For example, this is exactly what happened with the 7th Pay Commission (7th Pay Commission latest news). When it was implemented in 2016, the 125% dearness allowance was merged into the basic pay, and the DA was reduced to zero.

What will be the impact on your salary?

This change is beneficial for you. Why? Because when your future DA (e.g., 2%, 3%, or 4%) is calculated on your new, higher basic salary, the amount you receive will be higher. This will allow your total salary to grow even faster over time.

When will the 8th Pay Commission be implemented?

The Eighth Pay Commission (8th Pay Commission latest news) panel is expected to be formed by the end of 2025. This panel will likely take 15-18 months to submit its recommendations, with the report expected by March 2027. 

Once the recommendations are received, they are likely to be implemented from January 1, 2026, providing employees with the benefit of arrears.