In May 2025, the Indian Government made a significant decision by integrating the Dearness Allowance (DA) with the basic pay for central government employees and pensioners. This integration merged the existing DA component with the pay structure, fundamentally changing the structure of allowances, pensions, and future revisions of pay.
What Is the DA Merger?
The DA Merger implies that the existing DA of 62% as of July 2024 is no longer a separate allowance for employees. Instead, it is subsumed within the basic pay. This change improves the baseline salary for the calculation of House Rent Allowance (HRA), Travel Allowance (TA), pension, and gratuity.
Historical Context
The initiative to blend DA with basic pay is traceable to 2004, when the Fifth Central Pay Commission suggested merging 50% of DA with basic salary. The sixth pay commission did not pursue this merger, and neither did the seventh pay commission. Therefore, the 2025 merger is the first integration of this kind since the pre-sixth commission period.
Impact on Salaries
The new basic DA has been absorbed which results in over 50 lakh active employees and 65 lakh pensioners seeing substantial increases. This change will strengthen the increase in take-home pays and benefits received and thus help during retirement. In addition, the government’s decision to keep the fitment factor at 2.57 means that there will be lower immediate raises than what was anticipated.
Benefits and Concerns
This merger does provide a stronger basic pay thus leading to higher HRA and TA disbursement which is a major positive. The increase in the basic pay results in a stronger base for pension calculation, thus, improving the income security post-retirement. On the other hand, the increased basic pay means that the taxes will also increase which has been a major concern among the employees. In addition, there is no increase to the fitment multiplier which means that the gains will not be amplified.
Before vs After Merger
| Feature | Before Merger | After Merger |
|---|---|---|
| Basic Pay Calculation | Excludes DA | Includes DA |
| DA Component | Paid separately at 62% of basic pay | Absorbed into basic pay |
| Pension & Gratuity Base | Based on lower basic pay | Based on higher merged basic pay |
| HRA & TA | Calculated on pre-merger basic pay | Calculated on post-merger basic pay |
| Pay Volatility | Subject to bi-annual DA hikes | More stable, merged into fixed pay |
Conclusion
The merger of the dear allowance for the year of 2025 is a notable merger. Concerns for the low fitment factor will continue to be a concern for the people in the unions. This merger complete ensures a noteworthy change in the government’s compensation policy.
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