What Is Dearness Allowance?
Dearness allowance, also known as DA, is a component of your salary that you receive to cope with the rising cost of living due to inflation. DA is a fixed percentage of your basic salary, an additional amount added to your pay.
However, the amount you receive depends majorly on your location, for instance, people living in cities, towns, and rural areas may receive different DA because of different cost of living.
Types of Dearness Allowance
There are two types of Dearness Allowance-
- Industrial Dearness Allowance
- Variable Dearness Allowance
Industrial Dearness Allowance
It benefits the employees in public sector companies. Indian Government has recently increased the Industrial Dearness Allowance by 5%. This increase is applicable to board-level executives, officers, and staff members in Central Public Sector Undertakings.
Variable Dearness Allowance
The Variable Dearness Allowance is for Central Government Employees. It’s received every six months and the change in the new figure is determined by the changes in the Consumer Price Index (CPI). VAD is made up of three major components: the CPI, a base index, and the variable amount that Indian government sets.
The third component remains unchanged until the Government revises the minimum wages.
How to Calculate Dearness Allowance
Dearness Allowance was introduced after World War II, but its calculation changed since 2006.
For Central Government Employees
DA% = {(Average of All-India Consumer Price Index (AICPI) for the past 12 months with a base year of 2001=100 – 115.76) / 115.76) * 100}
For Public Sector Employees
DA% = {(Average of All-India Consumer Price Index (AICPI) for the past 3 months with a base year of 2001=100 – 126.33) / 126.33) * 100}
What Is Dearness Allowance in Private Companies
Dearness Allowance’s meaning in private companies is also the same—a fixed percentage of basic salary is given to employees to cope with the rising cost of living due to inflation. However, this concept has been brought by government and private companies aren’t entitled to give DA to their employees as per law.
What Is Dearness Allowance for Central Government Employees
As of July 2023, the Dearness Allowance for central government employees has increased by 4%. It means that the DA will be increased from 42% to 46% for approximately 5 lakh government employees.
Is Dearness Allowance Taxable
Yes, the Dearness Allowance is fully taxable.
The employees need to pay taxes on their DA just like they would do on their regular salary. For instance, if the employees meet all the necessary requirements, the DA becomes a part of their income that’s used to calculate their retirement benefits.
In that case, as per the Income Tax Act, it’s mandatory for employees to declare the tax liability for DA with their salary in their ITR form while filing their tax returns.
Dearness Allowance Latest News
As of Nov 2023, the UP government has declared a 4% hike in DA before Diwali (November 11th) to their employees including pensioners.
As of Oct 2023,
- The railway board announced a 4% hike in Dearness Allowance for its employees starting from July 1st.
- The Karnataka government announced a 3.75% hike in Dearness Allowance for state government employees (or public sector workers).
- The Gujarat government decided to provide four allowances – House Rent Allowance (HRA), Traveling Allowance (TA), Medical Allowance (MA), and Compensatory Local Allowance (CLA) –to employees of 65 Public Sector Units, boards, and corporations. This was declared as per the 7th Pay Commission and made effective on October 1st.
- The Union Cabinet approves the hike of 4% in Dearness Allowance for central government employees and pensioners.
As of July 2023,
- Chhattisgarh Chief Minister Bhupesh Baghel announced a 4% hike in Dearness Allowance for their state employees.
- In Madhya Pradesh, Chief Minister Shivraj Singh Chouhan declared a 42% Dearness Allowance for their state employees with retroactive effect from January 1st.
As of June 2023,
- The Telangana Government has revised the Dearness Allowance for their employees and increase the Dearness Relief for pensioners, which is effective from January 1st.
- As per the 5th Pay Commission, some central government employees have also received an increase in their Dearness Allowance and were expected to get another hike in July 2023.
Current Rate of DA for Central Government Employees
The current rate of DA for Central government employees is 46%. The majority of states in India have announced the hike in DA by 4%, so it has increased from 42% to 46%.
Final Thoughts
Dearness Allowance is a critical component of an employee’s salary and plays a crucial role in your financial well-being as it helps you combat the rising cost of living due to inflation. In the article, we explored how you can calculate your DA amount, whether it’s taxable, and what is the current state of DA in 2023.