Due to rise in inflation and rise in prices of all commodities, India is trying various measures to reduce the inflation. As the inflation can be decreased only to some extent. So certain Allowances are introduced by the Government to reduce the burden of the employees. This DA (Dearness Allowance) plays an important role in the part of Salary. The Salary paid by the employer to his employees from the public sector is divided into various components. One of the Salary components is Dearness Allowance (DA). This component of was introduced after the “Second World War”. At that time, it was known as ‘Dear Food Allowance‘ later on it became DA. This Dearness Allowance percentage changes to the employee based on the location, Cost of living. DA becomes more significant, especially for government employees. Here you can see clearly the Dearness Allowance Meaning.
What is Dearness Allowance?
Dearness Allowance is an extra amount given to an employee to meet the burden of inflation or increased Cost of living. DA is Fully taxable in all cases. In other words, it is also known as Cost of living allowance paid to the employees of the public sector by the Government. Dearness Allowance is some fixed percentage of the basic salary. DA varies for different categories of employees based on their location.
Salary = Basic Pay + Dearness Allowance (forming part of retirement benefits) + Commission based on the % of turnover
Calculation of Dearness Allowance
Dearness Allowance percentage changes for Central Government, Public Sector and State Government Employees. The formulae for calculating DA is as follows.
DA for Central Public Sector Employees:
Dearness Allowance Percentage = ((Average of AICPI (Base Year 2001=100) for the past 3 months -126.33)/126.33) x 100
AICPI means All India Consumer Price Index.
DA for Central Government Employees:
Dearness Allowance Percentage = ((Average of AICPI (Base Year 2001=100) for the past 12 months -115.76)/115.76) x 100
From 1996 onwards, Dearness Allowance has been included to compensate for price rise or inflation in a particular financial year & hence it is revised twice every year, once in January and then in July.
Related FAQ’s on Dearness Allowance
Is Dearness Allowance Applicable to Pensioners?
The Pay commission while framing a New Salary Structure it also concentrates on Retired employees of the public sector and revises some percentage of DA to them. If at all the percentage of Dearness Allowance is increased to the normal employees then the increased percentage of DA is also applicable to the Pensioners. So the change implies to both to the employees and to the pensioners.
What is Industrial Dearness Allowance?
IDA (Industrial Dearness Allowance) means the allowance that is applicable to the employees of the Public Sector Enterprise. The Government of India recently increased this IDA to 5% for the public sector companies. This was designed for the benefit of all officers and employees of Central PSU’s. According to the movement of the Consumer Price Index, the IDA for the Government sector enterprises is revised quarterly.