Umakanthan53
Labour Law & Hr Consultant

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How to calculate for DA AND VDA
From India, Pune
Dear Sachin,

The concept of " Dearness Allowance " originated during World War Era to combat the negative effects on the earnings of the working classes. However, with the passage of time it began to be an essential component of the current wage/salary structure of the employees and to be treated as an indispensable determinant for computation of terminal as well as social security benefits.Initially, it was granted as a fixed sum component but later converted to be of varying nature in tune with the hike in prices. Hence it is variable dearness allowance for short "V.D.A". For the sake of convenience of computation and uniform application, it is linked to the Cost of Living Indices for short "C.P.I" which measure changes over time in general level of prices of goods and services that households acquire for the purpose of consumption. CPI numbers are widely used as macroeconomic indicator of inflation as a tool by governments and central banks for inflation targeting and for monitoring price stability and as deflators in the National Accounts. CPI is also therefore used for indexing dearness allowance to employees for increase in prices. When VDA is introduce for the first time, a CPI is selected for linkage with a particular year as base year which having the base point of 100. For every increase in that point, a rate of amount as hike is fixed and granted normally taking the average hike over a period of 12 calendar months.

From India, Salem
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