Govt hikes DA by 4%. Here’s how to calculate dearness allowance on your salary

Generally, the government revises dearness allowance and dearness relief on 1st January and 1st July every year. However, the decision in DA is announced in March and September every year.

The current 4% hike will take DA to 38%. It has come into effect from July 1. Around 47.68 lakh central government employees and about 68.62 lakh pensioners are expected to benefit from this latest increase.

Earlier, the DA was at 34% between January to June 2022.

The DA is calculated as a percentage of the basic salary of government employees. In simple terms, DA means a cost-of-living adjustment that is offered to these employees. DA is paid by the government to help employees cope with stubbornly rising prices which is due to high inflation. Currently, India’s CPI inflation is at a multi-year high of 7%.

How to calculate Dearness Allowance on your salary

For central government employees: The DA is calculated as — {(Average of the All-India Consumer Price Index (Base year -2001 =100) for the last 12 months -115.76)/115.76} x 100.

Meanwhile, for central public sector employees, the DA is calculated as — {(Average of the All-India Consumer Price Index (Base year -2001 =100) for the last 3 months -126.33)/126.33} x 100.

An example!

Suppose, your basic salary is ₹33,000 — taking into consideration the latest hike of 4% your DA percentage comes at 38% — which will mean your dearness allowance is at ₹12,540.

If we take the DA of 34%, then the allowance comes at ₹11,220.

With the latest hike, your DA has been increased by ₹1,320 from July 1, 2022, compared to January – June 2022 levels.

According to the Clear website, as the impact of inflation varies according to the location of the employee, dearness allowance is calculated accordingly. Thus, DA varies from employee to employee based on their presence in the urban, semi-urban, or rural sectors.

It needs to be noted that the DA gets higher with the level of the pay matrix of an employee.

At present, there are two separate categories divided into dearness allowance namely Industrial Dearness Allowance and Variable Dearness Allowance.

In the case of the industrial dearness allowance, it applies to public sector employees of the central government and it undergoes quarterly revisions based on the Consumer Price Index (CPI) to offset the effect of soaring inflation. On the other hand, in regards to variable dearness allowance, is meant for central government employees and is calculated every six months depending upon the CPI to balance out the impact of higher inflation.

Further, Clear’s website explains that DA is fully taxable for salaried employees. 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 Income Tax rules in India require the dearness allowance component to be mentioned separately in the returns that have been filed.