Definition of Dearness Allowance
To deal with the impact of inflation, the government provided a dearness allowance to the employees to increase their in-hand salary which will help them in coping up with the prices increasing in the market. The government tries to do many practices so that the inflation in the market can be reduced. But due to the price increase in demand, the government fails to achieve the target. The impact of inflation depends on the location of the employee. When it comes to paying the dearness allowance to the government employees, it is calculated according to the place where the employees live. The dearness allowance for every government employee varies with respect to the residing areas based on the categorization as an urban area, semi-urban area, or rural area.
Calculation Of The Dearness Allowance
Dearness allowance is given to the employees as per their basic salary. Dearness allowance is calculated based on the inflation of the prices in the market. It is calculated twice per year i.e. January and July. The DA calculation formula was revised and changed after 2006. It is now calculated in the following methods.
Central Government Employees Calculation Method
Central Public Sector Employees Calculation Method
Dearness Allowance Treatment Under The Income Tax
The dearness allowance is fully taxable according to the salaries of government employees as per the updated norms. If in case any employee is getting unfurnished rent-free accommodation by the government, it becomes a part of that benefit up to the retirement benefits of an employee. It is given to the employees if all other pre-conditions are fulfilled.
As per the rules of the Income Tax Department, the dearness allowance amount is to be mentioned in the income tax return filed by the person. There is a separate entry made for the dearness allowance in the income tax returns.
Different Types Of Dearness Allowance:
The dearness allowance is categorized into two categories, industrial dearness allowance and variable dearness allowance.
What Is Industrial Dearness Allowance?
The industrial dearness allowance (IDA), is given to those employees, who belong to the public sector department of the central government. Industrial dearness allowance is revised every quarter as per the consumer price index to minimise the effect of inflation.
What Is Variable Dearness Allowance?
The variable dearness allowance is given to the employees of the central government. It is revised every six months as per the consumer price index to reduce the impact of inflation.
- The base index is fixed for a particular period.
- The consumer price index leads to an impact on the variable dearness allowance, which changes every month.
- The variable dearness allowance is always fixed until unless the government receives it again.
How does the Pay Commission impact the calculation of DA?
The pay commission has to evaluate and analyze the changes in the DA according to the various components of the final salary of public sector employees. So, dearness allowance is calculated by the pay commission after preparing the Pay Commission report. The pay commission is responsible for considering every factor, which helps to calculate the final salary of the employees. Role of pay commission also involves periodic reviewing of multiple factors for DA calculation and updating them on a regular basis.
Pensioners Dearness Allowance
Pensioners are those people who have worked for the central government and are retired from the government service. The Dearness Allowance is given to the eligible retired central government employees individually or to the families depending upon the criteria. The changing salary structure of the pay commission is responsible for the changes in the amount of pension of the retired person. If the dearness allowance is changed after revising the final salary, then it will reflect changes in the amount of pension also.
Changes In The Dearness Allowance As Per The 2018 Budget
According to the research, it is observed that more than 50 lakh people are getting a salary from the government for their government services and around 55 lakh people are receiving a pension from the government. In the 2018 budget, the Dearness allowance was raised by around 2%. It brought many benefits for the Central government employees and raised the DA to 7% from 5%.
Difference between DA and HRA
People in general may confuse DA as similar to HRA. But there is nothing like that. DA and HRA are two separate components treated differently in the income tax department with varied rules and regulations. The HRA is given to both public and private sector employees whereas the DA is given only to the public sector employees. In addition, in HRA there are many tax exemptions which are not applicable on DA.
What Is Merger Of Dearness Allowance?
The dearness allowance is continuously increasing for the public sector and central government employees. At present, it stands for 50% of the basic salary. The enhancement in the DA amount is the result of the unfavourable effect of inflation. It is noted that when DA crosses the 50% level then it is merged with the basic salary. If this is done, it will significantly impact the salary hike, as most of the components are calculated based on the basic salary. This is a wise step taken by the government in the welfare of the employees.
Frequently Asked Question
No, the employees of the private sector in India do not receive the benefits of Dearness Allowance as a part of their salary. It is applicable only to the government employees and pensioners.
Yes, Dearness Allowance differs based on the employee's work location. Dearness allowance is directly based on the living cost index; therefore it is not same for all employees working in rural, urban, and semi-urban areas.
The Pension Rule 50.A. grants public sector employees dearness allowance in order to compensate for price rise or inflation.
It is reviewed once in 6 months, on the basis of the cost of living index.
Yes, Dearness allowance & basic salary of an employee is merged when it exceeds the limit of 50%. This may results in a handsome hike in the salary of the employees.
Yes, DA is taxable. An employee having a regular salary according to the latest tax updates has to pay tax for Dearness Allowance. Also, during the Income Tax Return (ITR) filing, under the Income Tax Act, 1961, it is mandatory to declare one’s tax liability for Dearness allowances.
Whenever the pay commission proposes a new salary structure, Pension for the retired employees of the public sector is revised. Also, whenever the dearness allowance is revised, the pension of the retired employees undergoes revision accordingly.
Pensioner’s Dearness Allowance is calculated on the basic pension of an employee without commutation. This means an employee will receive a fixed percentage of original pension as D.A.
No, in cases where D.A. is granted along with fixed pay or time scale, the Pensioners reemployed under the State government, Central government, government undertakings, an Autonomous or local body, don’t have the eligibility to draw Dearness Allowance. Apart from this, in all cases of reemployment, D.A. is provided to a re-employed pensioner depending on the limit of the last drawn salaries.
No, it is not granted to pensioners/ employees who stay at any place outside India during reemployment. Pensioners without reemployment, living abroad are allowed to receive D.A. on pension.