Dearness Allowance or DA is a part of the salary structure in the payroll system of India. It is provided by the Indian government to its pensioners and employees to offset inflation impact. Although the government has taken various measures to control inflation, there has only been partial success with the prices moving in accordance with the market.
Since the impact of inflation is directly related to the employee’s location, the Dearness Allowance is also calculated accordingly. Therefore, it varies from one employee to another depending on different sectors such as rural, semi-urban and urban sectors. You can use the various DA calculators online to calculate your dearness allowance.
Dearness allowance is revised twice in a year, once in the month of January and then in July. The formula for DA calculation was revised by the government in 2006. The present formula is as follows:
For Central Government Employees
DA % = {(Average AICPI (Base Year - 2001 = 100) for the last twelve months - 115.76 ) / 115.76} * 100
For Public Sector Employees
DA % = {(Average AICPI (Base Year - 2001 = 100) for the last three months - 126.33 ) / 126.33} * 100
Where, AICPI stands for All-India Consumer Price Index
Dearness Allowance are of two types, they are -
Variable Dearness Allowance
Employees employed under the central government receive the Variable Dearness allowance. It is revised twice a year based on the Consumer Price Index (CPI). The CPI changes each month and it is an important factor in variable DA calculation.
There are three components involved in the calculation of variable dearness allowance. They are:
Consumer Price Index (CPI)
Base Index
The Variable DA amount fixed by the central government
Industrial Dearness Allowance
The Industrial Dearness Allowance is applicable to the public sector employees. The government revises dearness allowance rate on a quarterly basis and it is centred around the Consumer Price Index (CPI).
The Dearness Allowance is taxable under the Income Tax Act. The DA for salaried employees is entirely taxable. . In case the employee has an accommodation that is unfurnished and rent-free, then it becomes a part of salary. It also becomes a part of the retirement benefit of the individual if all the conditions are met. The IT rules state that DA has to be separately mentioned in the ITR when being filed.
Role of Pay Commission in Dearness Allowance Calculation
The pay commission makes changes to and evaluates the public sector employees’ salaries based on the several sections that make the pay slip of an employee. Hence, dearness allowance is considered by the pay commission while making the next pay commission report.
It is the pay commission’s role to make sure that they cover all the factors of salary calculation. This includes updating the factor of multiplication and periodic reviewing for the calculation of dearness allowance.
Dearness Allowance (DA) and House Rent Allowance (HRA) are two different portions of a salary slip and there are some major differences between the two. They are:
Dearness Allowance (DA) |
House Rent Allowance (HRA) |
It is paid to public sector and central government employees only |
It is available to both private and public sector employees |
It is a fixed percentage of the salary |
It is based on basic salary |
It is entirely taxable and has no exemptions |
It is partially taxable and the employee can claim some exemptions under the IT Act |
The dearness allowance rate is revised periodically |
It does not change unless the structure of the salary changes |
The DA for public sector employees has been growing continuously since 2006. This has happened a lot over the last few years to compensate for the rising inflation. The figure now stands at 50% of the basic salary.
It is a practice to combine dearness allowance with basic salary once the DA percentage crosses the 50% mark. It is a great salary booster for employees as all the other parts of the salary is calculated keeping basic salary as the base.
The Central Government announced that there will be a hike in DA for all its employees according to the recommendations of the Pay Commission from July 2021. The Union Cabinet approved another 3% dearness allowance increase. Since this decision, all of its employees started getting 31% dearness allowance from July 2021. In January 2022, there was another 3% increase in DA resulting in a 34% dearness allowance now.
Frequently Asked Questions
What is dearness allowance?
The meaning of Dearness allowance is it’s a component of the salary which is a percentage of the basic salary. This was brought into place to hedge the impact of inflation.
What happens when DA reaches 50%?
When dearness allowance reaches the 50% mark, it is merged with the basic salary. This means that the employees would be getting a major salary hike if that happens.
Is dearness allowance applicable to private sector employees?
No, only the public sector employees are eligible for getting the dearness allowance from the Government.
Are NRI pensioners eligible for DA?
In case a pensioner lives and works abroad, then the government of India does not pay a dearness allowance to that individual.
What is HRA and DA in salary?
HRA is House Rent Allowance whereas DA is Dearness Allowance. Both are different components of a salary.
How is DA calculated online?
You can use the dearness allowance calculators available online to quickly and effectively calculate DA.
Is house rent part of DA?
No, house rent is different and does not come under DA. House rent comes under the House Rent Allowance (HRA) component of your salary.
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