Central government employees are closely tracking the release of the December 2025 All-India Consumer Price Index for Industrial Workers (AICPI-IW), as it will determine the next hike in dearness allowance
(DA), which is due in January 2026.
The Centre last increased DA from 55% to 58% in July 2025. Once the December inflation data is announced, employees and pensioners will get clarity on the likely revision, which is expected to benefit around 50.14 lakh serving employees and nearly 69 lakh pensioners.
A DA hike has a direct impact on transport allowance (TA), as DA is added to the fixed TA component. Other allowances, such as house rent allowance (HRA), do not change with a DA revision and are revised only when basic pay is reset, typically through a Pay Commission. The next such revision is expected in July 2028, when the 8th Central Pay Commission submits its report.
How DA is calculated
DA for central government employees is calculated based on the AICPI-IW, which is released by the Ministry of Labour and Employment. The AICPI-IW reading for November 2025 stood at 148.2.
If the December 2025 index remains unchanged at 148.2, the DA is likely to rise by 5 percentage points, taking it from 58% to 63%.
The DA formula works as follows:
DA (%) = [{(Average AICPI-IW of last 12 months × 2.88) − 261.41} ÷ 261.41] × 100 − Existing DA (%)
Using the current data:
148.2 × 2.88 = 426.81
426.81 − 261.41 = 165.4
165.4 ÷ 261.41 = 0.63
0.63 × 100 = 63.00
63 − 58 = 5%
Impact on transport allowance
Under the 7th Pay Commission, transport allowance varies based on pay level and city classification. Cities are divided into X, Y and Z categories, with X cities attracting the highest allowance. The allowance is paid as a fixed monthly amount, and DA is applied on top of it.
Employees in Level 14 and above who are entitled to an official vehicle but do not use it receive Rs 15,750 per month, while physically handicapped employees are entitled to double the applicable TA.
“Whenever the dearness allowance is raised, the transport allowance is also raised by the same percentage,” said Manjeet Singh Patel, president of the All India NPS Employees Federation, according to a Moneycontrol report.
He explained the impact with an example of a Pay Level 5 employee posted in a Y-category city with a base TA of Rs 1,800. “If the dearness allowance has been raised to 50 percent, his TA will increase by Rs 900, taking the total to Rs 2,700,” Patel said.
At 50% DA:
DA on TA = Rs 1,800 × 0.50 = Rs 900
Total TA = Rs 2,700
Since the implementation of the 7th CPC in 2016, DA has climbed to 58%. At this level, an employee with a base TA of Rs 1,800 now receives Rs 2,844.
At 58% DA:
DA on TA = Rs 1,800 × 0.58 = Rs 1,044
Total TA = Rs 2,844
If DA is raised to 63%, the DA component on the same TA would rise to Rs 1,134, taking the total transport allowance to Rs 2,934.
At 63% DA:
DA on TA = Rs 1,800 × 0.63 = Rs 1,134
Total TA = Rs 2,934
The Labour and Employment Ministry is expected to release the December 2025 AICPI-IW data in the first week of February.
“Until the December 2025 AICPI-IW data is released, we can only estimate how much the dearness allowance might increase,” Patel said.
