The cabinet on Tuesday announced that it had approved a 3 per cent hike in Dearness Allowance or DA, a move that will benefit more than one crore central government employees and pensioners from January 1, 2019.
The decision will cost the exchequer over Rs 9,000 crore.
Dearness allowance is a component of salary paid to employees to counter the effect of inflation.
The 3 per cent increase will take the DA and Dearness Rate (DR) for pensioners to 12 per cent, Finance Minister Arun Jaitley told reporters after the cabinet meeting.
The hike will benefit about 48.41 lakh central government employees and 62.03 lakh pensioners, news agency PTI said.
This increase follows the accepted formula, which is based on the recommendations of the Seventh Central Pay Commission.