In a significant policy update, the Government of India has officially merged the Dearness Allowance (DA) with the basic salary for Central Government employees and pensioners, effective May 2025. This move impacts over 50 lakh serving employees and approximately 65 lakh pensioners across the country.
While the merger strengthens the salary structure and improves retirement-related benefits, many are disappointed that the fitment factor remains unchanged at 2.57, despite long-standing demands for an increase.
What is the DA Merger?
The DA merger means that the Dearness Allowance, previously calculated as a separate component to offset inflation, is now integrated into the basic pay. This integration increases the base salary, which is used to determine multiple financial benefits.
Why the Merger Matters
- Stabilized Pay Calculations: Reduces volatility from frequent DA adjustments.
- Higher Pension & Gratuity: Since retirement benefits are calculated on basic pay, pensioners stand to gain.
- Signals Reform Readiness: This move lays the groundwork for broader pay reform under the upcoming 8th Pay Commission.
The last similar merger occurred before the 6th Pay Commission. Nearly two decades later, this update marks a significant structural change.
Fitment Factor: Still 2.57
Despite growing pressure from employee unions, the fitment factor remains at 2.57.
| Factor | Details |
|---|---|
| Current Fitment Factor | 2.57 |
| Common Employee Demand | 3.00 to 3.68 |
| Government Stand | No change due to fiscal limits and inflation control |
| Implication | Slower increase in total salary |
For instance, if the current basic pay is ₹18,000, the revised salary remains ₹18,000 × 2.57 = ₹46,260.
Benefits of DA Merger Despite No Fitment Hike
Even without an updated fitment factor, the DA merger still offers multiple benefits:
- Higher Allowances: HRA, TA, and other perks rise since they’re based on revised basic pay.
- Boosted Retirement Corpus: Pension, gratuity, and NPS contributions are positively affected.
- Tax Impact: Higher gross income may shift employees into a new tax bracket.
Who is Covered?
| Category | Covered Under DA Merger |
|---|---|
| Central Government Employees | Yes |
| Central Government Pensioners | Yes |
| Defence Personnel | Yes |
| Autonomous Body Employees (Central Pay Scales) | Yes |
With vs Without Fitment Factor Hike
| Criteria | With Fitment Factor Hike | Without Fitment Factor Hike |
|---|---|---|
| Revised Basic Pay | Higher | Moderate |
| DA (Post-Merger) | Reduced | Reduced |
| Net Monthly Salary | Significant Increase | Slight Increase |
| HRA & Other Allowances | Substantially Higher | Increased |
| Pension Calculation Base | Higher | Moderate |
| Income Tax Impact | More Likely | Less Likely |
| Govt Financial Burden | High | Controlled |
Why No Fitment Factor Hike?
The government cited several reasons:
- Budgetary Constraints: Salary and pension expenses already make up a large part of the national budget.
- Inflation Management: A sudden salary spike may lead to inflationary pressure.
- 8th Pay Commission is Coming: A temporary pause allows more flexibility for comprehensive changes ahead.
What Should Employees and Pensioners Do Now?
Here’s how to stay updated and prepared:
- Check Salary Slips: Ensure DA is merged correctly into basic pay.
- Recalculate Allowances: HRA, TA, and others may change.
- Review Pension Slips: Pensioners should verify updated calculations.
- Tax Planning: Reassess tax deductions based on revised gross income.
- Track Pay Commission Updates: Follow news on the 8th Pay Commission.
Summary Snapshot: DA Merger Impact
| Criteria | Status After Merger |
|---|---|
| DA Included in Basic Pay | Yes |
| Fitment Factor Revised | No (Still 2.57) |
| Minimum Basic Pay | No Change |
| Allowances | Likely to Increase |
| Net Salary | Slight Increase |
| Pension Calculation | Based on Revised Basic |
| 8th Pay Commission | Awaited |
Conclusion
The merger of DA with basic pay in May 2025 marks an important policy correction, improving the salary structure and boosting retirement benefits. However, the lack of change in the fitment factor has somewhat limited the overall financial gain for employees.
As the country awaits the 8th Pay Commission, this transition is seen as a preparatory step toward more comprehensive salary reforms in the near future. Employees and pensioners should remain vigilant, informed, and financially prepared as more updates unfold.
FAQs
What is the benefit of DA merging with basic salary?
It increases the base used to calculate pensions, gratuity, and allowances, improving overall earnings.
Has the fitment factor been increased?
No, it remains at 2.57, despite employee demands for a higher figure.
Will my HRA increase due to this merger?
Yes, since HRA is calculated on the revised basic pay, it is likely to increase.
Does this affect pensioners as well?
Yes, pension amounts based on the new basic pay will see an increase.
Is this a permanent revision?
Yes, DA is now permanently merged with basic pay, until the next structural revision or Pay Commission update.