We know DA or Dearness Allowance is one of the most important components. Every single employee gets their basic salaries according to their respective services and pay scales. Besides this, there are some more components that are also added to the basic salary as a cost-of-living adjustment as well. Dearness Allowance or DA is one of them.
In simple words, you can also call it a percentage of salary that will be revised every six months. Both private and government sector employees get these mandatory benefits. It helps to balance real income over time. Dearness Allowance is also different for every single employee. Here is the detailed overview of Dearness Allowance, keep reading to collect all the information.
What is Dearness Allowance?
It is very important to know and understand some basic factors about Dearness Allowance very clearly. In this part, you will come to know the basic information about Dearness Allowance. As you already know Dearness Allowance is for every employee and some pensioners as well to balance the cost of living goods and services. All the employees require constant salary enhancements as it will help them balance according to the market price. Just like this, Dearness Allowance is also calculated for all employees.
Dearness Allowance is the most important part of your salary that can help an employee to live their life and cope with increasing prices.
Increase in Dearness Allowance
In this part, you will be able to get to know all the information related to the increase in Dearness Allowance very clearly. Recent news said that the Union Cabinet announced a new and beneficial update related to Dearness Allowance and Dearness Relief for all central government employees.
As per their updates, it increases by 4% in both the Dearness Allowance and Dearness Relief. So, from 1st January 2023, it became 50% from 46%. This update was for only government employees, so private companies may not follow it or some private companies are also following this update to make a healthy balance. It was first introduced in the time of World War two and day by day it has evolved into a special and regular component of salary.
Types of Dearness Allowance
There are two different types of categories in the Dearness Allowance and both have different key features. So, the two main categories of Dearness Allowance are industrial Dearness Allowance and another one is Variable Dearness Allowance. Let’s collect some information about these two types of Dearness Allowance from this article.
Industrial Dearness Allowance:
IDA or Industrial Dearness Allowance is for all the public sector employees of this government. In this Dearness Allowance, the percentage of DA increases quarterly depending on the Consumer Price Index. The purpose of the Industrial Dearness Allowance is to help to maintain a healthy balance for living. Economic condition is one of the most valuable and effective factors in this Industrial Dearness Allowance.
Variable Dearness Allowance:
This Dearness Allowance is also for every government employee that also updates every six months according to the Consumer Price Index. The difference is that it is not a fixed Allowance. Variable Dearness Allowance is also dependent on three different factors, such as Base Index, Consumer Price Index, and Fixed Variable Dearness Allowance. The Base Index remains fixed for a limited period. However, the Consumer Price Index changes every month and impacts Variable Dearness Allowance.
How to calculate Dearness Allowance?
Dearness Allowance is calculated twice a year, in January and July. The calculation formula to calculate the Dearness Allowance was updated in 2006 by the Government. Here you can be able to collect some information about recent calculation formulas very clearly. Here we are trying to show you two different ways. Keep reading.
Way No. 1.
The calculation for Central government employees:
Dearness Allowance% = [( average of the All India Consumer Price Index of last 12 months – 115.76)/115.76]×100
For public sector employees:
Dearness Allowance %=[(average of the All India Consumer Price Index of last 3 months-126.33)/126.33]×100
Way No. 2.
To understand the calculation of Dearness Allowance, first, you have to read this article properly and also need to collect the formula for calculating Dearness Allowance very well. You will get all of this information on the Internet very easily.
Now you have to calculate the Index point increase first. For that, you have to use the formula that is given below.
- Base Index-Current Index = Increased Index point.
Now the approved formula for calculating Dearness Allowance is here;
- Dearness Allowance = (average Index- base Index)/base Index ×100
Some more specific formulas are also there which are dependent on the organization or government policies as well.
Is Dearness Allowance under Income Tax?
As per the Rules of the Income Tax department, Dearness Allowance is counted as a taxable income. Dearness Allowance is one of a part of the total income of an individual. So, you have to declare Dearness Allowance when filing income tax returns.
Usually, all the employers deduct TDS from the salary and submit it to the Government on behalf of the employees. But as an employee, you must provide all the information related to Dearness Allowance and other income details very clearly when filing an income tax return and also need to add form 16 and others.
Challenges in Dearness Allowance
There are some Challenges are also there, such as,
- There will always be economic challenges but Dearness Allowance needs to be updated as per the current consumer price index.
- Some cities are focusing on personalized updates to balance the consumer price index over inflation. It can help to point out some unknown factors of each employee very well.
Final thought
Dearness Allowance is one of the additional payments that is added to the basic salary of any employee given by the employer. It is also the most vital tool in salary management that enhances the confidence in any employee to remain stable. You just need to read this article carefully and collect some beneficial factors that can help you a lot.