According to the Chief Minister, the hike would be effective from 1 January 2020. As the impact of inflation varies according to the location of the employee, dearness allowance is calculated accordingly. One such important component is Dearness Allowance or DA. Same way, base index also remains fixed for a particular period. Likewise, if the Dearness Allowance is changed by a particular percentage, the pension of the retired personnel is revised accordingly. is revised by a certain percentage, the pension of the retired employees undergoes revision accordingly. The Income Tax Act mandates that tax liability for Dearness allowance will have to be declared in the filed returns. Near about 50 lakh government employees and 65 lakh pensioners will now be benefitted with the recent hike in Dearness Allowance (DA) which has been announced by the Government of India. Dearness Allowance Means: In India, Dearness allowance (D.A.) These changes are going to significantly benefit all the employees and pensioners of the Central Government. This has happened over a number of years during which the DA percentage rose steadily in order to hedge the rising inflation. Save taxes with ClearTax by investing in tax saving mutual funds (ELSS) online. Industrial Dearness Allowance (IDA) applies to the Public sector employees of Central Government. Dearness allowance is a cost of living adjustment allowance paid to the government employees and pensioners.It is one of the components of salary, and is counted as a fixed percentage of the person's basic salary.It is adjusted according to the inflationary trends to lessen the impact of inflation on government employees. The government has recently announced through an office memorandum that it has decided to put the hikes on the dearness allowance (DA) on hold for pensioners and govt employees till the month of July 2021. Therefore, DA is also considered by the Pay Commissions while preparing the subsequent pay commission report. This has been a result of the constant enhancement in the DA ever year to offset the adverse effects of inflation. Several other components are then calculated added in respect to the basic salary and are then added to it to calculate the take-home amount. The salary is taken for the period the employee occupies the accommodation. If the employee has been provided with an unfurnished rent-free accommodation, it becomes that part of the salary up to which it forms the retirement benefit salary of the employee, provided that all other pre-conditions are met. The third component remains fixed until the government revises the minimum wages. This also includes the periodic reviewing and updating the multiplication factor for calculation of DA. Calculation of Dearness Allowance (DA) DA Calculation Formula for the Central Government Employees: Dearness Allowance (%) = [(Average of AICPI (With Base Year 2001 = 100) for the last 12 months – 115.76)/115.76] * 100 What is Dearness Allowance? 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. Which is combined with HRA. Given the current situation, the DA hike for the year 2020 has been put on hold for about 50 lakh Central Government employees. It is a fixed percentage of the basic salary aiming to hedge the impact of inflation. 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. Our Goods & Services Tax course includes tutorial videos, guides and expert assistance to help you in mastering Goods and Services Tax. Currently, the dearness allowance makes up 50% of the basic salary. A percentage of the salary has been paid to the employee as his / her cost of living. D.A. As a rule, it is practice to merge the DA with the basic salary once the DA percentage breaches the 50% mark. No, the private sector employees in India are not entitled to receive Dearness Allowance as a part of their salary. 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. Changes in Dearness Allowance as per the Budget 2018 As per an estimate, there are more than 50-lakh central government employees who receive the salary from the government. The DA is (49000 x 12) /100. 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. The current DA rate stands at 21% as part of pension and salary. Latest News: Goverment put on Hold to Dearness Allowance hike due to Coronavirus impact. This percentage varies from company to company, and is usually between 8% and 12%. If an employee does not receive a commission or a dearness allowance, then the HRA will be around 40% - 50% of his/her basic salary. VDA in itself is dependant on three different components as given below. File before 30th Nov to get assured rewards worth. (VDA) applies to the employees of the Central Government. Since, DA is directly related to the cost of living, the DA component is different for different employees based on their location. You will receive a call shortly from our customer support. The central govt employees and pensioners will now keep receiving the DA at the rate of 17% till July 2021. Dearness Allowance is a major and progressive salary component for the employees of the Indian Government. File Income tax returns for free in 7 minutes, Get expert help for tax filing or starting your business, Curated Mutual Funds & plans for tax savings, Complete solution for all your e-invoicing needs, I-T, e-TDS & Audit Software for CAs & Tax Professionals, Employee health plan, incl. ClearTax serves 2.5+ Million happy customers, 20000+ CAs & tax experts & 10000+ businesses across India. As of today, the DA is 50% of the employee’s basic salary after years of a steady increase in the DA percentage. DA is reviewed biannually, once in every 6 months, on the basis of the cost of living index. COVID-19 cover with monthly payments. Only the CPI or Consumer Price Index changes every month and affects the overall value of the variable dearness allowance. According to fresh media reports, the government has decided to increased dearness allowance by 4 percent, thus meaning, the dearness allowance of central employees will increase from 17 percent to 21 percent. Calculation Of The Dearness Allowance. Dearness Allowance is calculated as a percentage of an Indian citizen's basic salary to mitigate the impact of inflation on people. 49000. Dearness Allowance too, is taken into account for rolling out the next pay commission report. No, the private sector employees in India are not entitled to receive Dearness Allowance as a part of their salary. The Industrial Dearness Allowance for public sector employees undergoes quarterly revision depending on the Consumer Price Index to help offset the impact of rising levels of inflation. For more than 11 million employees, the Dearness Allowance was increased to 7% from an earlier rate of 5%. The Income Tax rules in India require the dearness allowance component to be mentioned separately in the returns that have been filed. The Central government at this time is also considering hiking the dearness allowance by four percent in January. 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. Ltd. All public sector employers pay basic salaries to their employees according to the respective pay scale. D.A. It is paid by the government to employees of the public sector and pensioners of the same. 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. Since the year 2006, the dearness allowance for employees from the public sector has been continuously growing. According to various sources, 40% of the arrear amount between January 1st, 2016 and August 31st, 2017 was disbursed during the financial year 2017-2018. The pay commission must evaluate and change the salaries of public sector employees based on the various components that make up the final salary of an employee. Update: Dearness Allowance for Central Government Employees was continued to be calculated after implementation of 7th Pay Commission based on consumer price index with … For example, the existing rate of percentage is 12%, if your basic salary is Rs. House Rent Allowance HRA, which is part of the basic salary, is fully or partially exempt from taxes. 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. Based on this figure, the DA of employees is revised and rolled out. Rates vary as per rural/urban areas etc. On the basis of the recommendation of the 7th Pay Commission, the cost of this hike will go up to Rs.16,000 crore and will be effective from July 2019. The state government will, however, continue to pay the DA and DR at the rate of 17%, but the employees and pensioners will not receive the arrears was due from July 1, 2020 and January 1st, 2021. It is the responsibility of the pay commissions to take into account every factor that helps with the calculation of the salaries. Since, this allowance is related to the cost of living, the Dearness Allowance component differs for various employees based on their location. It is revised every six months according to the Consumer Price Index to help offset the impact of rising levels of inflation. 7th Pay Commission 7th Pay Commission latest update: Big changes likely in Salary, DA, PF, Gratuity, travel allowance; know details here. ClearTax is a product by Defmacro Software Pvt. Pensioner’s Dearness Allowance is computed on the basic pension of an employee without commutation. Since, DA is directly related to the cost of living, the DA component is different for different employees based on their location. 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. Dearness Allowance must not be confused with the HRA as they are two separate components and are treated differently for income tax. Additionally, there are certain Tax exemptions applicable to HRA which are not available for the DA. Since D.A. For HRA calculation, the salary you get is defined as the sum of dearness allowances, basic salary and other commissions. 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