About Dearness Allowance (DA):
- What is it? DA is a cost of living adjustment that the Government pays to public sector employees and pensioners.
- Why is DA paid? To curb the effect of inflation.
- How is DA calculated?
- It is calculated as a percentage of the basic salary.
- DA for Central Government employees is calculated differently than that of public sector employees.
- The formula to calculate the DA was changed in 2006 by the Government.
- DA % for Central Govt Employees = {(All-India Consumer Price Index average (Base year 2001 =100) for the last 12 months -115.76)/115.76} x 100
- DA % for Public Sector Employees = {(All-India Consumer Price Index Average (Base year 2001 =100) for the last 3 months - 126.33)/126.33} x 100
- Since DA is based on the cost of living, this salary component is not fixed. DA varies from employee to employee based on their presence in the urban, semi-urban, or rural sectors.
- Taxability:
- DA is fully taxable for individuals who are salaried employees.
- It is compulsory to declare the tax liability concerning DA when filing an ITR.
- Types of DA:
- Variable Dearness Allowance (VDA):
- VDA applies to Central government employees.
- It undergoes revision every six months based on the changes in the Consumer Price Index (CPI).
- Industrial Dearness Allowance (IDA):
- IDA applies to the Public sector employees of the Central Government.
- IDA is revised every quarter based on the changes in CPI.
