In Wage and Salary Administration, the sum total of the consideration both in cash and kind payable by the employer to his employees for the services rendered by them can be broken into different components such as basic and other allowances either sue moto by the employer or through collective bargaining.Since the monetary value of the entire consideration is called gross wages/salary basing on which the employer has to pay certain regular and occasional amounts under certain statutory heads like contributions to EPF, ESI,Bonus, Leave Salary,Gratuity etc.,which are called as indirect commitments, dictated by the tendencies of thrift and prudence employers always prefer to reduce the CTC by adopting salary break-up and the employees also accept it on account of the rise in their take-home salary and tax benefits.So, dearness allowance is one among such components of wage/salary structure.
The concept of dearness allowance or D.A for short , came into practice in India during World War-II to off-set the sudden and exhorbitant raise in prices and remained a regular practice to counter the inflationary effects upon the wages/salary of the working classes both in industrial and other sectors. D.A or V.D.A or Dearness Pay are basically one and the same but different in terms of the basis of calculation and cycle of implementation. Despite the method of calculation and the periodicity of its revision, it forms part of the gross salary. When it is shown as a distinct component, it will reduce the burden of the indirect commitment to some extent like in the case of payment of gratuity. As far as I know, there is no legal compulsion to pay it seperately.
When the quantum of D.A and its periodicity of revision is determined either on the basis of prevailing general price levels or linked to any Consumer Price Index, it is called Variable Dearness Allowance.
21st July 2016 From India, Salem
12th November 2018 From India, Madgaon
Originally the term Dearness Allowance depicts - variable allowance, the allowance being given to adjust against cost of living (inflation). In India it is linked with All India Consumer Price Index. The AICPI derives the index from a basket of food, clothe, fuel and such essentials/commodities a person requires for a family. For government employees the DA is revised quarterly or six monthly as average of monthly DA. Hence this DA is called Variable DA (VDA). Commonly it is known as DA.
It may be found that certain organizations have DA and VDA both as component of their compensation/CTC. Here the DA is likely to be the Fixed DA. At the time of wage revisions (e.g. 7th Pay commissions) the current VDA may be get converted into the Fixed DA and new VDA is being initiated afresh or as per decided formulas. Hence there could be both components, i.e. DA (FDA) and VDA.
12th November 2018 From India, Mumbai