The Dearness Allowance (DA) is a calculation on inflation and allowance paid to government employees (including public sector unit employees as public sector unit employees are also government employees) and pensioners in India, Bangladesh and Pakistan.
Dearness Allowance is calculated as a percentage of an Indian citizen's basic salary to mitigate the impact of inflation on people. Indian citizens may receive a basic salary or pension that is then supplemented by a housing or a dearness allowance, or both. The guidelines that govern the Dearness Allowance vary according to where one lives. Dearness Allowance is a fully taxable allowance. The two types of Dearness Allowance are: Dearness Allowance given under terms of employment. Dearness Allowance not given under the terms of employment.
History
The Dearness Allowance was introduced following the second World War, and was then known as the "Dear Food Allowance". The "Old Textile Allowance" was also introduced in 1947, though this was revised and reintroduced in 1953 as the "Revised Textile Allowance". Initially DA was given in response to demand of employees for wage revision. Later it was linked to Consumer Price Index. In the past various committees have been constituted to look into the issue of payment of D.A. to Central Government employees. The III Central Pay Commission recommended payment of DA whenever the CPI rose by 8 points over the index of 200 (with base 1960 = 100). The extent of neutralisation granted with effect from 1-1-1973 ranged from 100% to 35%. The IV Central Pay Commission recommended the grant of DA on a 'percentage system' of the basic pay (1986).It also recommended payment of DA twice a year; 1 January and 1 July.Each instalment of DA was to be calculated with reference to the percentage increase in the 12 monthly average of All India Consumer Price Index (base 1960). The extent of neutralisation now ranged from 100% to 65%. The V Central Pay Commission looked into the issue of differential neutralisation and found it to be injustice to senior officers and recommended uniform neutralization of 100% to employees at all levels. The Commission had suggested that dearness allowance should be converted into dearness pay every time the cost of living rises by 50% over the base level. The VI Central Pay Commission recommended revision of base year of the Consumer Price Index (CPI) as frequently as feasible.It also changed base year for DA calculation to 2001 (base year 2001=100)
Calculation sheet
Formula for calculating Dearness Allowance for Central government employees after 1.1.2006 is :
Dearness Allowance %= { (Average of year 2001=100) for the past 12 months – 115.77)/115.77}*100
In October 2021, the government revised the Consumer Price Index-IW base year from 2001 to 2016. A linking factor of 2.88 was defined for converting the new series with the base 2016=100 to the previous series on base 2001=100. Based on this, the DA is currently calculated with the following formula
DA = (A – 261.4)*100/(261.4) Where A = Avg of CPI-IW (base 2016=100) for the past 12 months x linking factor of 2.88
Formula for calculating Dearness Allowance for Central public sector employees after 1.1.2007 is :
Dearness Allowance %= { (Average of year 2001=100) for the past 3 months - 126.33)/126.33}*100
Dearness allowance with effect from January or July of a particular year in the future, once the for a particular month is published by the Government, whereas for PSU employees it is declared quarterly by DPE (Department of Public Enterprise).
Beginning 1 January 1996, the Dearness Allowance is granted to compensate for price increases to which the revised pay scales relate. This will be reviewed twice a year, on 1 January and 1 July.
The following table shows All India Consumer Price Index since 1.1.2006 with Base year 2001=100
The DA Rate for Industrial Workers (since 1.1.2007 with Base year 2001=100) for 3rd Quarter (Sep-Dec), 2015 has been declared as 107.9% and that of 4th Quarter (Jan-Mar), 2016 is 112.40%.
The Vth Pay Commission recommendations were implemented since 1.1.1996 and consequently DA rate wef 1.1.1996 became 0. Further in 1994 Central Government merged 50% of the Dearness Allowance (DA) with the basic pay w.e.f. 01.04.2004 and the Dearness Allowance continued to be calculated with reference to the AICPI (IW) average as on 1 January 1996 of 306.33 without changing the index base consequent to the merger. Accordingly, Dearness Allowance (DA) as mentioned in table below were sanctioned from 01.07.2004 till 01.07.2007.