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  • Dearness Allowance (DA) With Example

    India has been trying various measures to reign in the rising inflation and as a result the rising prices of almost all commodities. Most severely hit out of all have been food items and as such people have been hit the most by food inflation. Considering the fact that inflation is a result of movement of the market, government understands that it can only take measures to a certain extent in order to curb it. However, people need to be shielded from the extreme effect of rising prices and thus Dearness Allowance or DA becomes an important player

    Salary paid to employees by employers from the public sector is segregated into various components. One of these components is dearness allowance. The concept of dearness allowance or DA was introduced after the Second World War when it was known as 'Dear Food Allowance'. Initially DA was granted by the government owing to the demand for wage revision by employees. However, later it was linked to the Consumer Price Index. Various committees in the central government have been responsible for restructuring and re-evaluation of DA percentage for various financial years.

    In a country like India, Payment of DA becomes even more significant owing to the subdivision of various Indian states into cities, towns and villages. The DA component takes care of the change in the cost of living depending upon the location of the employee. Specially, for government sector employees, job transfers are an essential feature and hence DA becomes even more significant in order to hedge the inflation cost of living difference as well as inflation.

    What is Dearness Allowance?

    Dearness Allowance

    Dearness Allowance is cost of living adjustment allowance which the government pays to the employees of the public sector as well as pensioners of the same. DA component of the salary is applicable to both employees in India and Bangladesh.

    Dearness Allowance can be basically understood as a component of salary which is some fixed percentage of the basic salary, aimed at hedging the impact of inflation. Since, DA is directly related to the cost of living, the DA component is different for different employees based on their location. This means DA is different for employees in the urban sector, semi-urban sector or the rural sector.

    How to Calculate Dearness Allowance?

    After the Second World War, DA component was introduced by the government. After 2006, the formula for calculating dearness allowance has changed and currently DA is calculated as follows,

    For Central Government employees:

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

    For Central public sector employees:

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

    Where, AICPI stands for All-India Consumer Price Index.

    From the year 1996, DA has been included to compensate for price rise or inflation in a particular financial year and hence it is revised twice every year, once in January and then in July.

    What is Industrial Dearness Allowance?

    Industrial dearness allowance or IDA is the allowance applicable to employees of the public sector enterprises. Recently, the government of the India has increased IDA by 5% for this sector. This decision is set to benefit all board level executives, officers and employees of central PSUs.

    IDA for government sector enterprises is revised quarterly based on the movement of the Consumer Price Index (CPI) in order to compensate for the rising inflation in the country.

    Variable Dearness Allowance:

    VAD or Variable dearness allowance is the allowance that comes as a result of revision every six months for central government employees. The changed new figure that is received as a result of taking into consideration the increase or decrease in the Consumer Price Index, CPI, is termed as Variable dearness allowance. Based on this figure, the DA of employees is revised and rolled out.

    There are three components that make up VAD. First is the consumer price index, second, the base index and third is the variable DA amount fixed by the government of India. The third component remains fixed until the government revises the minimum wages. Same way, base index also remains fixed for a particular period. Only the CPI or Consumer Price Index changes every month and affects the overall value of the variable dearness allowance.

    Dearness Allowance Merger:

    Since the year 2006, the dearness allowance for employees from the public sector has been continuously growing. The figure currently stands at 50% of the basic salary. This has happened over a number of years during which the DA percentage rose steadily in order to hedge the rising inflation.

    As a rule, it is practice to merge the DA with the basic salary once the DA percentage breaches the 50% mark. This is supposed to be a great salary booster for employees since all other components of the salary are calculated as a percentage of the basic salary. Demands for merging the DA with the basic salary have been with the government for quite some time. The union cabinet is expected to take a decision on this matter soon. In the meantime, employees from the public sector are ecstatic with anticipation of a merged DA which would mean a major hike in their salaries.

    Role of Pay commissions in modifying DA:

    Every subsequent pay commission in India is expected to revaluate the salary of employees of the public sector taking into account the various components of salary. Dearness Allowance too, is taken into account for rolling out the next pay commission report. Pay commissions take into account all the factors that feed into the calculation of salaries of personnel in the public sector. Reviewing and changing the multiplication factor also comes under the purview of the pay commissions.

    Dearness Allowance for Pensioners:

    Every time a new salary structure is rolled out by a pay commission, the pension for retired employees of the public sector is also revised. Same is the case with Dearness Allowance; every time DA is increased by a certain percentage, the same change gets reflected in the pensions of retired public sector employees. This applies to both regular pension as well as family pension.

    Difference Between DA and HRA?

    DA or dearness allowance is calculated as a specific percentage of the basic salary which is then added to the basic salary along with other components like HRA (House Rent Allowance) to make up the total salary of an employee of the government sector.

    HRA or House Rent Allowance is the salary component given by an employer to an employee in order to meet expenses related to the renting of accommodation which the employee takes for residential purposes. HRA is applicable to both employees from the private sector as well as the public sector whereas DA is majorly applicable to employees working in the public sector.

    News About Dearness Allowance

    • Additional 2% Dearness Allowance cleared by the Government

      The Union Cabinet that is chaired by Prime Minister Narendra Modi has approved the release of an additional installment of Dearness Allowance to employees of the Central Government and Dearness Relief to pensioners. The increase has been 2% over the existing rate of 2% of the Pension/Basic Pay in order to compensate for increase in price.

      It has also been said that this rise is as per the accepted formula is based on the 7th Central Pay Commission’s recommendation. The government also said that the impact of this rise in Dearness Allowance and Dearness Relief will be Rs.5,857.28 crore every year and Rs.6,833.50 crore in the financial year of 2017 to 2018.

      22nd March 2017

    • Dearness Allowance Hiked by 7% in Odisha

      News coming in from Odisha on the 17th of December is that the government has decided to hike dearness allowance or DA of all its current employees and the dearness relief received by the pensioners by 7% with effect from the month of July, 2016 in retrospective. The hike was declared by Naveen Patnaik, the chief minister of Odisha, at the Bhubaneswar state secretariat.

      The hike is set to benefit almost 4 lakh present employees and 3 lakh pensioners. The decision will increase the government expense by Rs.540 crore for 8 months. The added burden on the exchequer will be Rs.810 crore p.a. The hike has increased the Dearness Allowance for Odisha government employees from the earlier 125% to 132% now.

      17th December 2016

    • Arun Jaitley's Foreign Trips Cause Delay in Dearness Allowance Hikes

      For those central government employees who were rejoicing at the upcoming hike in dearness allowance will have to postpone their celebrations. The finance minister's busy schedule in the upcoming weeks has led to the postponement of the hike. The hike of close to 2% in the dearness allowance will be further postponed by at least 7 to 10 days due to the packed travel itinerary of the minister. This includes a three day visit to Canada where the minister is currently present followed by a seven day visit to the United States of America. This means that the nod by the Union Cabinet for the hike won't take place before 10th October 2016.

      4th October 2016

    • Move to hike Dearness allowance to be approved by Dussehra

      Acche Din has finally arrived for more than 10 Million Central Government employees. The Modi government is on the verge of approving an increase in the dearness allowance by 2% just in time for the coming Dussehra festival. The hike is likely to take place as per accepted calculation under the 7th Pay Allowance commission recommendation and will be moved by the Finance Minister, Arun Jaitley. The average rate of CPI-IW or Consumer price Index-industrial labour from July 2015 to June 2016 was close to 2.90% and using the calculation recommended by the 7th pay commission, the hike will be 2%.

      3rd October 2016

    • No Dearness Allowance for Foreign Citizens Who worked Under the Punjab State Government

      The state government in punjab has come to the decision to halt paying dearness allowance (DA) and also reimbursing all the medical expenses of their retired employees who are currently citizens of foreign nations. The retirees would continue to get the basic pension or the family pension, but without the DA.

      Currently 125% DA is paid by the Government on the basic salary to the employees.

      The finance department notified officials from all the departments as well as commissioners both who are divisional and deputy and even the registrar of Punjab as well as the Haryana high court, on September 16 to stop DA payments to former employees with citizenship abroad.

      21st September 2016

    • Telangana Expected To Make A Loss of 100 Crore Over Dearness Allowance Hike

      The state government of Telangana on Thursday raised employees' dearness allowance by 3.144% of the basic pay on last week. This hike will be evaluated and calculated from January 1, 2016. Hence the dearness allowance has been increased to 18.34% from 15.196%. It is expected to benefit over 3.5 lakh ployees across the state. However, this also means 100 crore cost to the State Government every month for this statement.

      Despite that employees are relieved considering that they will gain benefits from the hike and it has come after an eight month of delay from when it was actually supposed to be effective.

      7th September 2016

    • Pay Commission Arrears to be Disbursed With August Salary for Government Employees

      All eligible employees of the central government will receive arrears from the 7th Pay Commission implementation as a lump sum amount along with the salary for August. Over 1 crore employees working with various departments and agencies will receive the monetary benefit (inclusive of the Dearness Allowance hike) which became effective from January 1 this year.

      To speed up the disbursal process, the arrears may be paid without pre-check of the pay fixation. As per the recommendation made by the Pay Commission, the minimum salary for a central government employee will now be Rs.18,000 per month. It must be noted that the base scale before the implementation was Rs.7,000. Employees would get a 2.57 time hike in the basic salary as per the recommendations made.

      9th August 2016

    • State Government Employees in Tripura to Get an Additional 4% DA

      In a move set to benefit over 209,000 state government employees and pensioners, the Tripura Government has declared an addition 4% Dearness Allowance. This announcement was made on July 14, 2016 as a measure to bring the pay on par with the central government scale. It must be noted that a section employees working with Tripura Government had expressed their displeasure in the wake of recent recommendations made by the 7th Pay Commission.

      This would result in an additional burden of Rs.134.40 crore on the state exchequer. The DA increase is applicable for fixed pay, part time and contingent workers. In must be noted that the state's current financial situation is in a serious crunch.

      20th July 2016

    • Tripura High Court Directs State To Pay 31% DA To Employees

      In a bid to ensure that parity was given between central and state government employees, the Tripura high court on Friday instructed the Manik government to pay 31 per cent dearness allowance (DA) to all state government employees in the form of three installments spread out over six months. Shishrendra Saha, Secretary general of Tripura Government Employees Federation, filed a petition that highlighted the difference in the payment of DA to state government employees and central government employees. The petition was approved by Justice Subhashis Talapatra, who directed that the first instalment of the balance is to be paid in the next month. Saha stated that while all state government employees have the right to be paid the same DA amount as central government employees, the government of Tripura had failed to make provisions to bring parity between the two from January 2009 to August 2011. He also stated that unlike other states, who followed the norms diligently, the Tripura government had actually released an additional 7 per cent DA to its employees, widening the difference to 31 per cent.

      29th June 2016

    • Assam Government Employees To Receive 6 Per Cent DA, DR Hike

      The Government of Assam today increased the dearness allowance and dearnes relief for all its employees and pensioners by 6 per cent. This hike will be effective from the 1st of January 2016. Chief Minister, Sarbananda Sonowal, signed off the first file, which contained the 6 per cent enhancement in DA and DR allowances, on his maiden day in office in the presence of Chief Secretary V K Pipersenia, Commissioner and Secretary, Finance Dr Ravi Kota and other senior officials. All DA and DR arrears, which have accumulated during the period January 1st 2016 to May 21st 2016 will be paid out via bank account in one single installment. With the six per cent increase in DA and DR allowances, a Chief Minister's Office (CMO) release stated that the state government of Assam will potentially have to incur additional expenditure to the tune of Rs 63 crore per month, which could rise up to Rs 900 crore over the duration of the entire year until the end of February 2017.

      17th June 2016

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