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. In addition to this, the freezing of DA and DR till July 2021 will help the Centre around Rs.37,500 crore and the state Rs.82,500 crore and this amount will be used in helping the government tackle COVID-19 in the state as a stimulus package. 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. Dearness Allowance must not be confused with the HRA as they are two separate components and are treated differently for income tax. For example, the existing rate of percentage is 12%, if your basic salary is Rs. Ltd. All public sector employers pay basic salaries to their employees according to the respective pay scale. Pensioners, in this case, are those retired employees of the central government who are eligible for either the individual or family pension from the government. The DA is (49000 x 12) /100. D.A. Every time the Pay Commission rolls out a new salary structure, the change is also reflected in the pension of the retired employee. Download ClearTax App to file returns from your mobile phone. © 2021 ‐ Defmacro Software Pvt. The Odisha government also announced that the 10% arrears that are pending due to the recommendations of the 7th Pay Commission will be cleared. is granted along with fixed pay or time scale. In January 2016, the Dearness allowance rates have reached at 125%. The formula to calculate the dearness allowance was changed in 2006 by the Government. 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. Dearness allowance is calculated based on the inflation of the prices in the market. 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 figure currently stands at 50% of the basic salary. Dearness Allowance is calculated as a percentage of an basic salary.The guidelines that govern the DA vary according to where one lives (for example, whether rural or urban). DA is reviewed biannually, once in every 6 months, on the basis of the cost of living index. D.A. According to various sources, the increase in DA will benefit around 3.5 lakh employees. In order to calculate the HRA, the salary is defined as the sum of the basic salary, dearness allowances and any other commissions. D.A. The Dearness Allowance is a calculation on inflation and allowance paid to government employees, public sector employees and pensioners in India, Bangladesh and Pakistan. Due to the novel pandemic COVID-19, the Chief Minister of Haryana, Manohar Lal Khattar and the government of Haryana took a call to freeze the Dearness Allowance of the employees and the Dearness Relief for the pensioners till July 2021, according to an official statement put out by the Haryana Finance Department. (12% is the norm). One significant difference is that HRA applies to both private and public sector employees, while only public sector employees are entitled to DA. is revised by a certain percentage, the pension of the retired employees undergoes revision accordingly. Basic salary is a fixed amount to be paid to an employee addition of any allowances or subtraction any deductions. Presently, it stands at 50% of the basic salary. If you do not get commissions or dearness allowance then the house rent allowance will be 40 percent or 50 percent of your basic salary. grants public sector pensioners and family pensioners D.A. You can efile income tax return on your income from salary, house property, capital gains, business & profession and income from other sources. This allowance is applicable to both employees in India and Bangladesh. Enter your number below. What came as a huge relief to most central government employees was the hike in the Dearness Allowance. These changes are going to significantly benefit all the employees and pensioners of the Central Government. Normally, the Basic Salary is the actual salary and DA is taken as a percentage of this basic. Once in twice or once in six months, the percentage of Dearness Allowance is increased based on the Consumer Price Index for Industrial Workers Base Year 2001=100. January and July. As per Assessment Year 2017-18, Dearness Allowance is completely taxable for individuals who are salaried employees. Also, under the Income Tax Act, 1961, it is mandatory to declare one’s tax liability for D.A. Dearness allowance is given to the employees as per their basic salary. One such important component is. As DA is provided to employees to protect against the price rise in a particular financial year, it is calculated twice every year – in January and July. during Income Tax Return (ITR) filing. Privacy Policy. 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. For HRA calculation, the salary you get is defined as the sum of dearness allowances, basic salary and other commissions. It is paid by the government to employees of the public sector and pensioners of the same. Further you can also file TDS returns, generate Form-16, use our Tax Calculator software, claim HRA, check refund status and generate rent receipts for Income Tax Filing. Dearness Allowance too, is taken into account for rolling out the next pay commission report. The central govt employees and pensioners will now keep receiving the DA at the rate of 17% till July 2021. (VDA) applies to the employees of the Central Government. Indian citizens may receive a basic salary or pension that is then … 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. Pensioners who are reemployed under the State government, Central government, an Autonomous or local body, or government undertakings, don’t have the eligibility to draw Dearness Allowance in cases where D.A. It is calculated twice per year i.e. Industrial dearness allowance or IDA is the allowance applicable to employees of the public sector enterprises. Bonuses, overtime, dearness allowance, etc are not a part of basic pay. is part of a person's salary. Every government employee receives DA which is based on a percentage of the basic salary. in order to compensate for inflation or price rise. remains fixed unless the government revises the basic minimum wages. However, a revision will be put in to effect on July 1st, 2021 and this will also take the previous hikes under consideration. Pensioners who are staying abroad without reemployment are allowed to receive D.A. Ltd. ClearTax offers taxation & financial solutions to individuals, businesses, organizations & chartered accountants in India. Dearness Allowance is paid by the government to its employees as well as a pensioner to offset the impact of inflation. 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. Dearness Allowance is a major and progressive salary component for the employees of the Indian Government. 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. In 2018 witnessed a lot of changes in the realm of taxation. You will receive a call shortly from our customer support. ClearTax can also help you in getting your business registered for Goods & Services Tax Law. is granted to a re-employed pensioner depending on the limit of the last drawn emoluments. This merging results in a significant hike in the salary of the employees. Salaried individuals who live in a rented house can claim HRA to … This page is best viewed in Chrome, Firefox or IE 11. Display of any trademarks, tradenames, logos and other subject matters of intellectual property belong to their respective intellectual property owners. The memorandum also states that the beneficiaries will not receive any arrears from January 1st, 2020 to June 30th, 2021. 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. is merged with the basic salary of an employee when it exceeds the limit of 50%. Since the year 2006, the dearness allowance for employees from the public sector has been continuously growing. This decision is set to benefit all board level executives, officers and employees of central PSUs. This also includes the periodic reviewing and updating the multiplication factor for calculation of DA. The Central government at this time is also considering hiking the dearness allowance by four percent in January. Enter the yearly gross salary, and percentage of basic salary, HRA, dearness allowance(DA), conveyance allowance, medical allowance, special allowance, professional tax and bonus, the net salary calculator tool will automatically fetch you the detailed salary breakup and net salary … Dearness Allowance- Dearness allowance is a certain percentage of the basic salary paid to employees, aimed at mitigating the impact of inflation. Our experts suggest the best funds and you can get high returns by investing directly or through SIP. He added that this has been one of the highest hikes in the past few years. Currently, D.A. As per the rules, it is a practice to merge the DA with basic salary when it crosses the level of 50%. First is the consumer price index, second, the base index and third is the variable DA amount fixed by the government of India. The demand has been raised with the Government, and a decision is soon expected on these lines. The Income Tax Act mandates that tax liability for Dearness allowance will have to be declared in the filed returns. Dearness Allowance increased by 5% from 12% to 17% from July 2019. If the decision is made in favour of the employees, it would significantly boost their salaries. Recently, the government of the India has increased IDA by 5% for this sector. The current rate of Dearness allowance multiply with your basic salary is Dearness allowance. Dearness Allowance Calculations. DA component of the salary is applicable to both employees in India and Bangladesh. Allowances provided and the limits on it will differ from company to company, according to their policies. Nearly 50 lakh government employees and 65 lakh pensioners will be benefited from this hike. The union cabinet had approved the hike of 4% in DA which resulted to the DA rising up to 21%. VDA in itself is dependant on three different components as given below. Then there are another 55-lakh retired central government employees who are eligible for a pension. 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. Basically, Dearness Allowance is understood as a component of salary which is a fixed percentage of an employee’s basic salary, which aims to hedge the impact of inflation. DA to private sector employees is not mandatory by law. 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. The Chief Minister of Odisha announced on February 14th, 2020 a 5% increase in Dearness Allowance (DA) for government employees. 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. Get more Personal Finance News and Business News on Zee Business. 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. differs for the employees depending on their work location. Tip. Dearness Allowance increased by 5% from 12% to 17% from July 2019. Union Minister Prakash Javadekar said that the government has increased the Dearness Allowance to 17% from 12%. According to the statement, when the government takes a decision to release the future instalments of the Dearness Allowance and the Dearness Relief which is due from 1 July 2021, the rates of the DA and the DR will be restored and will be subsumed in its cumulative revised rate which will be effective from 1 July 2021. According to the Chief Minister, the hike would be effective from 1 January 2020. However, if a salaried employee is provided with an unfurnished accommodation which is rent-free, after the fulfilment of all the pre-requisites, D.A. 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. Therefore, DA is also considered by the Pay Commissions while preparing the subsequent pay commission report. With the new budget, came a lot of new advancements and developments. 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. How to Calculate Dearness Allowance for Central Government Employees and Pensioners after implementation of 7th Pay Commission and introduction new Consumer Price Index with base 2016=100? Copyright © 2021   BankBazaar.com. Additionally, there are certain Tax exemptions applicable to HRA which are not available for the DA. But there is no hard rule to say that the Basic + DA should be 70%. 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. Currently, the dearness allowance makes up 50% of the basic salary. What is Dearness Allowance? As the impact of inflation varies according to the location of the employee, dearness allowance is calculated accordingly. Calculation Of The Dearness Allowance. Since, this allowance is related to the cost of living, the Dearness Allowance component differs for various employees based on their location. (IDA) applies to the Public sector employees of Central Government. VDA in itself is dependant on three different components as given below. Basically, Dearness Allowance is understood as a component of salary which is a fixed percentage of an employee’s basic salary, which aims to hedge the impact of inflation. 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 Dearness allowance is given to central government employees to help them bear their expenses keeping inflation in mind. It is revised every six months according to the Consumer Price Index to help offset the impact of rising levels of inflation. It is a part of your take-home amount. VAD or Variable dearness allowance is the allowance that comes as a result of revision every six months for central government employees. Our article Salary,Allowances,Dearness Allowance,Government Salary, Pay Commission discusses it in detail After 2006, the formula for calculating dearness allowance has changed and currently DA is calculated as follows, Dearness Allowance % = ((Average of AICPI (Base Year 2001=100) for the past 12 months -115.76)/115.76)*100, Dearness Allowance % = ((Average of AICPI (Base Year 2001=100) for the past 3 months -126.33)/126.33)*100. Pensioner’s Dearness Allowance is computed on the basic pension of an employee without commutation. Is Dearness Allowance same as House Rent Allowance ? In order to lessen inflation effects on the salaries of these employees, the dearness allowance hike is usually offered to pensioners and staffers. 40% of basic and dearness allowance (50% in case of metro cities). After the Second World War, DA component was introduced by the government. Leaving so soon? The Central government has also frozen the hike in inflation-linked allowance. Despite several measures by the government to control the rate of inflation, only partial success has been achieved because the prices move according to the market. Therefore, 10% of the employee’s salary will be provided under the Odisha Revised Scales of Pay Rules for the financial year 2019-2020. This means DA is different for employees in the urban sector, semi-urban sector or the rural sector. The given below is the salary breakup calculator to know the individual amounts of your basic salary. So, while the cost of living keeps on rising, Dearness Allowance (DA) is paid by the government to its employees to offset the inflation impact and help them cope up with the rising prices. Demands for merging the DA with the basic salary have been with the government for quite some time. This applies to both regular pension as well as family pension. 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. As per the 6 th pay commission the rate in 2015 January was 113% where the rate has increased to 119% in July 2015. Dearness Allowance Means: In India, Dearness allowance (D.A.) This means, an employee receives a specific percentage of his/her original pension as D.A. 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 concept of DA was incorporated after After Second World War • Dearness allowance - a cost of living adjustment - is payable to public sector employees, central government employees and pensioners by the government. The third component remains fixed until the government revises the minimum wages. One such important component is Dearness Allowance or DA. Yes, D.A. This came as a significant relief for all these beneficiaries as their Dearness Allowance was enhanced from 5% to 7%. The salary is taken for the period the employee occupies the accommodation. Dearness Allowance is planned as a percentage of an Indian citizen’s basic salary to lessen the force of inflation on people. ClearTax serves 2.5+ Million happy customers, 20000+ CAs & tax experts & 10000+ businesses across India. 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. According to the proposed changes, this hike is most likely to work in the favor of more than 48.41 lakh central employees and 61.17 lakh pensioners and staffers. This has been a result of the constant enhancement in the DA ever year to offset the adverse effects of inflation. Dearness Allowance is calculated as a percentage of an Indian citizen's basic salary to mitigate the impact of inflation on people. Likewise, if the Dearness Allowance is changed by a particular percentage, the pension of the retired personnel is revised accordingly. As per the latest updates, DA is fully taxable for salaried employees. Since, DA is directly related to the cost of living, the DA component is different for different employees based on their location. Latest News: Goverment put on Hold to Dearness Allowance hike due to Coronavirus impact. As a rule, it is practice to merge the DA with the basic salary once the DA percentage breaches the 50% mark. According to rules and regulations, if the percentage of dearness allowance crosses the 50% mark, then it mandatorily needs to be merged with the basic salary. 7th Pay Commission 7th Pay Commission latest update: Big changes likely in Salary, DA, PF, Gratuity, travel allowance; know details here. 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