The Union Cabinet on Thursday approved the proposal to increase dearness allowance (DA) to 80%, from the existing 72%, benefiting about 50 lakh employees and 30 lakh pensioners of the central government.
The hike would be effective from January 1, 2013 and the employees and pensioners will be entitled to arrears.
The decision to raise the DA will impose an additional annual burden of Rs 8,629.20 crore on the exchequer, Information and Broadcasting Minister Manish Tewari told reporters after the meeting of the Union Cabinet.
Taking into account the additional outgo for the January-March period, the total burden during the current financial year would be Rs 10,067 crore.
The government had hiked DA to 72% in September last year. It had come into effect from July 1, 2012.
As per the practice, the DA is merged with basic pay when it breaches the 50% cap. This helps employees get higher allowances as they are paid as proportion of the basic pay.