Dearness Allowance (DA) is a cost-of-living allowance. The cost of living is linked to DA. So, the DA varies for employees in different places. This means DA is diverse for employees in cities, small towns, or the countryside. Let’s learn about DA and the factors related to it.
What is a dearness allowance?
Dearness Allowance is paid by the government to its employees as well as pensioners to mitigate the impact of inflation. There is a need for a sustained increase in the effective wages of government employees to help cope with rising prices. Despite many measures taken by the government to control the inflation rate, there has been only partial success as prices move according to the market. Since the impact of inflation varies according to the location of the employee, dearness allowance is calculated accordingly. Thus, DA varies from employee to employee depending on their presence in urban, semi-urban or rural area.
Calculation of Dearness Allowance (DA)
Since DA is provided to employees to protect them from price rise in a particular financial year, it is calculated twice every year – in January and July. The government had changed the formula for calculating dearness allowance in 2006. At present, DA is calculated as per the following formula:
For Central Government Employees
DA% = [Average of AICPI for last 12 months (Base year 2001 = 100) – 115.76/115.76] x 100
For public sector employees
DA% = [(Average of AICPI for last 3 months (Base year 2001 = 100) – 126.33)/126.33] x 100
Types of Dearness Allowance
There are three distinct categories to calculate Dearness Allowance. They are Manufacturing besides Variable DA.
How is DA Preserved Under Income Tax?
Paid employees must pay all valid taxes on their Dearness Payment. All requirements are met. Also, employees get rent-free, unfurnished housing. The dearness grant is part of the wage to the extent that it is in the retirement salary. Given the Income Tax Act, tax accountability for Dearness Allowance must be unveiled in the submitted forms.
Role of Wage Commissions in DA Calculation
Every new pay directive in India must reevaluate the salaries of civic sector workers. It must consider all the parts of the salary. The next pay commission report resolution takes into account Dearness Allowance as a fine. Pay commissions should include all the factors. They determine the pay of public sector employees. The pay commissions have the specialist review and adapt the multiplication factor.
Dearness Allowance for Pensioners
The pension for retired public sector workers is adjusted each time a pay commission makes a new pay structure. When DA increases by a percentage, retired public sector employees’ pensions adjust by the same amount. This is true for equally standard pensions in addition to family pensions.
Dearness Allowance Hike through per New Developments
What came as a huge relief to most vital government employees was the hike in the Dearness Allowance. The Union Cabinet proclaimed a raise of 2% in the DA of government employees recently. Indian Prime Minister Narendra Modi is leading this move. It will benefit over 50 lakh Central Government employees and about 55 lakh pensioners. The hike in DA helps pensioners and staffers. It lowers inflation’s impact on their salaries.
2018 witnessed a lot of changes in the monarchy of taxation. With the new budget, came a lot of new advancements besides developments. For more than 11 million employees, It has increased to 7% since an earlier rate of 5%.
The planned changes are likely to help 48.41 lakh central employees. But, they will hurt 61.17 lakh pensioners and staffers.
Difference Between DA and HRA
A government worker’s salary is determined by adding the base income, other things like HRA, and the dearness allowance. The DA is a set percentage of the base wage.
- HRA, or House Rent Allowance, is a share of an employee’s salary. It’s assumed by an employer to help with the cost of renting a home for residential purposes. HRA smears to both private in addition public sector staff. DA is mainly for public sector employees.
- Dearness Allowance (DA) and House Rent Grant (HRA) are two parts of an employee’s salary. They must not be confused. Here are some of the key differences between DA and HRA:
- Eligibility is limited. DA is only for public sector employees and seniors. Both public and private sector employees are qualified for HRA.
- There are no tax exemptions existing in the case of DA. However, certain exemptions are put on to HRA, as per the necessities of the Income Tax Act.
- DA is calculated as a proportion of the basic salary of a public area employee. On the other hand, HRA is not calculated as a fraction of the basic salary. It is a component of an employee’s salary that helps to accomplish the requirements for letting accommodation.
- Purpose: DA is a cost-of-living change. The Government offers it to public sector employees to curb the impact of inflation. In contrast, HRA is meant to help employees fulfill their housing needs. It provides a part of their salary to pay for rental housing.
In summary, both DA and HRA are parts of an employee’s salary. But, they serve different purposes. They have unique criteria for eligibility, tax implications, and calculation methods.
Dearness Allowance Merger
Since the year 2006, the affection allowance for employees from the public area has been continuously growing. The figure presently stands at 50% of the basic salary. This has happened over several years through which the DA percentage rose steadily to prevent the rising inflation.
As a rule, it is a practice to unite the DA with the basic salary after the DA percentage breaches the 50% mark. This is thought to be a big salary boost for employees. This is because all other parts of the salary are a portion of the basic salary.
Strains for merging the DA done the basic salary have been by the administration for quite some time. The union breakfront is expected to decide on this stuff soon. In the meantime, employees from the public sector are ecstatic with the expectancy of a merged DA which would mean a major hike in their salaries.
Conclusion
Dearness allowance is important in salary. It adjusts the cost of living and helps employees manage increases. Some of the reasons to prove the position of DA percentage in salary construction are listed below.
