Over 1.2 crore central employees and retirees have been waiting for enhanced dearness allowance (DA) and dearness relief for a long time (DR). The wait is ended, as Prime Minister, Narendra Modi's ministry announced that the dearness allowance will be restored. Employees and retirees will be able to grin again as a result of this decision. The increased DA rate will take effect with the July salary and will result in a large increase in monthly in-hand pay for Central Government employees, just in time for the festive season.
What is Dearness Allowance and Dearness Relief?
The Dearness Benefit is an inflation-adjusted allowance granted to government employees, public sector employees, and retirees. In order to offset the impact of inflation on people, Dearness Allowance is computed as a percentage of an Indian citizen's basic wage.
Dearness Relief is calculated using the pensioner's basic pension/family pension. The Dearness Relief on the pension is adjusted and paid by the Pension Disbursing Agencies.
The DA is determined by their basic salary, whereas the DR is determined by their basic pension. The effect of inflation varies according on the employee's location, thus the dearness allowance is computed accordingly. As a result, DA differs depending on whether a person works in an urban, semi-urban, or rural setting.
How to calculate DA hike?
To figure out how much a central government employee's DA arrears are worth, do some easy math for a 7th Pay Commission Level-1 employee with a Grade Pay of Rs 1800 and a salary range of Rs 18,000 to Rs 56,900.
Government employees currently receive a 17 percent dearness allowance. The DA is 3,060 if a government employee's basic income is Rs 18,000. With a 28 percent increase, the dearness allowance will be Rs 5,040. From July 1, this calculation will be used.
The 7th Salary Commission recommends Rs 18,000 as the minimum basic pay for entry-level Central Government employees. Such employees received Rs 3060 as a dearness allowance until June 30, 2021, at the 17 percent DA rate. They would now receive Rs 5040 as a dearness allowance at a 28 percent rate.
Dearness Allowance % = ((Average of AICPI (Base Year 2001=100) for the previous 12 months -115.76)/115.76)*100
Dearness Allowance Percentage = ((Average of AICPI (Base Year 2001=100) for the previous three months -126.33)/126.33)*100
AICPI is an abbreviation for All-India Consumer Price Index.
Dearness Allowance: Important Things To Know
- Employees' DA varies depending on their job location. Because DA is linked to the cost of living, it is not the same for all employees and differs depending on whether they work in rural, urban, or semi-urban settings.
- When a pay commission introduces a new salary structure, the pension for retired public sector personnel is also updated. The same is true for Dearness Allowance: whenever DA is increased by a certain percentage, it is reflected in the pensions of retired public sector personnel.
- The dearness allowance, also known as DA, is computed as a percentage of the basic income, which is then added to the basic salary, together with other components such as HRA (House Rent Allowance), to make up the total salary of a government employee.
Tax on DA
For salaried employees, DA is entirely taxed. If the employee is given unfurnished rent-free housing, it becomes part of the wage up to the point where it becomes the employee's retirement benefit salary, assuming all other conditions are followed. The dearness allowance component must be reported separately in the forms submitted in India, according to the Income Tax laws.