Dearness Allowance (DA)
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.
Dearness Allowance under Income Tax and Exemption Limit Chart
As per Assessment Year 2017-18, DA is completely taxable for individuals who are salaried employees. In case employees are provided with rent free accommodation that is unfurnished wherein all prerequisites are met, Dearness allowance is a part of the salary to the extent wherein it forms a part of the retirement benefit salary.
How to Calculate DA?
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.
What is Industrial Dearness Allowance?
Industrial DA 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.
Difference Between DA and HRA?
DA 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.
