According to the Seventh Pay Commission, the Central Government has increased the Dearness Allowance (DA) of its employees from 17 per cent to 28 per cent. This dearness allowance has also come into effect from July 1. Along with this, the DR (Dearness relief) of pensioners has also been increased. The government gives allowance to its employees and pensioners to protect them from inflation. It has to be increased due to rising inflation. It is calculated twice in a year i.e. in January and July. DA varies according to urban, semi-urban and rural areas. Let us know how it is calculated.
Formula to Calculate DA
In 2006, the government changed the formula for DA calculate. Since then DA is calculated on this basis. On the basis of this formula, DA for Central Government employees is calculated on the basis of- {Average All India Consumer Price Index for the last 12 months (Base Year-2001=100-115.76/115.76}X100. The formula for Central Public Sector Employees is as follows- {Average of 3 Months All India Consumer Price Index (Base Year-2001=100-126.33/126.33}X100
how much will the salary increase
The Central Government has decided to increase DA to 28 percent of Basic Pay. Earlier it was 17 percent but it has been increased by 11 percent. If the basic salary of an employee is 30 thousand rupees, then according to 28 percent this amount will sit at Rs 8,400.
DA comes under tax net
Salaried employees have to pay tax on DA. According to income tax rules, employees have to separately fill part of DA in ITR. There are two categories of DA. Industrial Dearness Allowance and Variable Dearness Allowance (VDA). Industrial Dearness Allowance is applicable to central government and public sector employees and is reviewed quarterly on the basis of the Consumer Price Index (CPI).
The VDA is applicable to central government employees and is reviewed every six months based on the Consumer Price Index (CPI). VDA is also based on three things – 1. Base Index 2. Consumer Price Index and 3. VDA fixed by the government. It remains in force till it is amended by the government.
Dearness Allowance for Pensioners
Dearness Allowance for pensioners is also called Dearness Relief (DR). Whenever the Pay Commission makes a new pay structure, the change in it also affects the pension of retired employees. If the dearness allowance increases, the DR of the pensioners also increases.
Travel amid Covid Times: Going out somewhere in Corona time! Keep these things in mind during booking and stay
What is Consumer Price Index?
DA is calculated on the retail inflation rate based on the Consumer Price Index. It is borne by the general consumer. Whereas WPI is the price paid by the producer. The retail inflation rate directly affects the common people, so the DA is calculated on this basis.
Difference between DA and HRA
Often people confuse DA and HRA as one. But there is difference between both. According to income tax, the tax liability on both is different. HRA is available to both private and public sector employees while DA is available only to public sector employees. There is also some tax exemption for HRA. But there is no tax exemption on DA. Full tax is levied on this.
This is how dearness allowance started
During the Second World War, dearness allowance was started. At that time, this money was given to the soldiers apart from the salary for food and other facilities. At that time it was called Food Dearness Allowance or Dearness Food Allowance. In India, dearness allowance was first started from Mumbai in 1972. After this dearness allowance was given to all the government employees of the central government.
Get Business News in Hindi, latest India News in Hindi, and other breaking news on share market, investment scheme and much more on Business Khabar. Like us on Facebook, Follow us on Twitter for latest financial news and share market updates.
.