Sun. Apr 21st, 2024

If you are a central government employee or pensioner or family pensioner, then you must have noticed that the Dearness allowance you get has increased from 31% to 34% effective from the 1st  of January, 2022. This has been exciting news for central government employees, however, do you know how you can benefit from DA which shows in your salary break up? Yes, there are different benefits of this allowance that government and public service employees are entitled to, and here are the details.

What is Dearness Allowance (DA)?

Dearness allowance meaning is simple. The dearness allowance is the adjustment or allowance paid to the government employees and pensioners to tackle the inflation in the economy. The government applies multiple measures to keep inflation in check, however, the results are always halfway there, and the prices of goods and services rise significantly with passing time. Thus, government employees and pensioners get DA so that they can cope with the rising inflation in the market. The effective salaries of these employees are revised on a regular basis by adjusting DA. This allowance differs from urban to rural and semi-urban areas as inflation varies from one region to another.

Who is eligible to receive Dearness Allowance?

As it is clear from the dearness allowance meaning, Central government employees, public servants, and state government employees receive DA as a part of their total salary. The DA varies from urban to rural and also from central government to State government. For instance, Madhya Pradesh increased its DA for state government employees from 20% to 31% with effect from April 2022. Similarly, every state government pays DA as per their salary structure and Central as per its own.

What are the different types of Dearness Allowance?

Although dearness allowance meaning remains the same, there are two types of DA which are –

  • Industrial Dearness Allowance (IDA):

IDA is for the public sector employees who work under the central government. The central government revises IDA each quarter to cope with rising inflation. The quarterly revision of the IDA depends on the consumer price index.

  • Variable Dearness Allowance (VDA):

This dearness allowance is for the employees of the central government and it is revised every six months. VDA was also revised as per the consumer price index to beat the rising inflation. Variable Dearness allowance has three components: base index, prefixed variable DA, and consumer price index. Here, the base index remains the same/ fixed for a long period while the consumer price index changes every six months, and the VDA has revised accordingly. The central government always fixes the variable DA beforehand and it doesn’t alter if the central government doesn’t increase or decrease the basic minimum wage.

Consumer price index

You came across a consumer price index term in the above paragraph on which the DA depends. So, the consumer price index (CPI) refers to the metric used to measure an economy’s inflation. It calculates retail inflation by considering the prices of the goods and services consumed by the country’s retail citizens over time. If the price of the goods and services increases, the CPI increases. This metric is used by governments to calculate DA, check inflation, and ensure adequate money supply for other reasons.

How can you calculate your Dearness Allowance?

The process of calculating DA is quite simple. Here it is –

For central government employees

Dearness Allowance % = [{Average of AICPI(Base Year 2001=100) for the past 12 months -115.76}/115.76]*100

For the Public sector Employees

Dearness Allowance % = [{Average of AICPI(Base Year 2001 =100) for the past 3 months -126.33]/126.33]*100

Pensioners and family pensioners

The DA of the pensioners and the family pensioners are revised with every new DA structure announced by the pay commission of India. If the DA is increased by the pay commission, the same is reflected in the amount of pension.

Benefits of Dearness Allowance breakup in salary slip

As the name suggests, the Dearness allowance meaning itself is keeping the employees dear to the company and what else can matter much to the employees, if their salaries increase with the rise in inflation, isn’t it? Dearness allowance received by the central government, state government, and public sector employees and pensioners, helps them –

  1. Offset the cost of inflation:
    The inflationary expenses can take a toll on the monthly budget of the household expenses of the employee. Thus, if the same is taken care of by the Dearness Allowance, then the monthly budget is not hampered.
  2. Increase the total in-hand salary of the employees:
    With a rise in the disposable income of the employees, they would have higher money and purchasing power; which in turn would help the economy to grow at large.
  3. Help pensioners live without worrying about rising prices:
    Since pensioners’ livelihood depend on the pensions received, their expenses would also rise due to medical and lifestyle inflation. This is where Dearness Allowance plays a very important role as they typically do not have any other source of income.

Though the government takes necessary measures to keep inflation in check, inflation increases every year at least by some percentage. This increases the price of goods and services and makes them expensive. If the income level doesn’t rise, people face difficulties to maintain the same standard of living with the rise in inflation. Thus, the Dearness allowance is paid so that the government employees and pensioners can keep up with their living standards and don’t face difficulties to pay their expenses.

How is Dearness Allowance taxed in the hands of the employee?

Now, the Dearness Allowance paid to the employees in order to cope with the inflationary and lifestyle rise in expenses is 100% taxable in the hands of the employee. However, at the time of filing your Income Taxes, Dearness Allowance needs to be specifically mentioned in the form.

Conclusion

Its very clear from the dearness allowance meaning that it has always been the favourite portion of the salary slip for most employees, as it increases either every six or three months. It helps them beat inflation and government employees, public sector employees and pensioners are the only few lucky people who are entitled to receive this benefit. Thus, one should be very thorough with the dearness allowance meaning.

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