Dearness Allowance

DA means Dearness Allowance is a component of salary structure in Indian Payroll. DA is a fully taxable allowance that is paid by the government to its current and retired employees. DA (Dearness Allowance) is the component of salary which is applicable to India as well as Bangladesh. It is paid by the government in order to balance the impact of inflation.

How is Dearness Allowance is Calculated?

Since DA is paid to the employees to balance price rise in a financial year, DA is calculated twice a year – January and July. DA is calculated using the following formula:

For Central Government Employees:

% of DA = {(Average of the All-India Consumer Price Index (Base year -2001 =100) for the last 12 months -115.76)/115.76} x 100

For Central Public Sector Employees:

% of DA = {(Average of the All-India Consumer Price Index (Base year -2001 =100) for the last 3 months -126.33)/126.33} x 100

Dearness Allowance under Income Tax

Dearness Allowance is fully taxable for salaried employees. If any employee is provided with rent-free accommodation from an organization that is unfurnished, it becomes the part of the salary where all other perquisites are met. It forms the retirement benefit salary of the employee.

Types of Dearness Allowance:

  • Industrial Dearness Allowance (IDA) – Applies to Public Sector employees
  • Variable Dearness Allowance (VDA) – Applies to Central Government Employees