Dearness Allowance (DA) - Meaning, Types, DA Calculation & Taxes

What is Dearness Allowance?

The full form of DA is Dearness Allowance. It is a type of allowance provided by the government to employees and pensioners. It prevents them from the impacts of inflation by providing a cost-of-living adjustment. 

The calculation of the dearness allowance is based on the percentage of basic salary. It can be different for the employees according to their basic pay. DA is a part of their salary, hence it is completely taxable.

Calculation of Dearness Allowance

The dearness allowance is given to the employees to protect them against the increase in prices in a specific financial year. The DA is calculated twice a year, in January and July. The formula for calculating the dearness allowance is as follows:

For the Central Government Employees

DA% = [(Average of AICPI ( Base Year 2001 = 100) for last 12 months - 115.6)/ 115.76]* 100

For the Public Sector Employees

DA% = [(Average of AICPI ( base year 2001 = 100) for the last 3 months - 126.33) / 126.33]* 100

In these formulas, AICPI means the All-India Consumer Price Index. 

Types of Dearness Allowance

There are two types of DA for calculation purposes:

1. Industrial Dearness Allowance: It applies to the employees of the public sector working under the central government. The IDA is revised every 4 months, depending on the Consumer Price Index. 
2. Variable Dearness Allowance: It applies directly to the employees of the central government. This allowance is revised every 6 months as per the Consumer Price Index. The VDA is dependent on the three components, which are the Base Index, the Consumer Price Index, and the variable DA amount.