Understanding Dearness Allowance: How Do You Calculate It?

Hi,

How do you calculate Dearness Allowance?

Hi Ishita,

DA is calculated as a percentage of the Basic Salary of the person. It is given based on the inflation rate, which is calculated from the Consumer Price Index (CPI) of that geographical area. You can access the CPI of different cities in India at http://labourbureau.nic.in/cpw3tab.htm, and particularly for Mumbai at http://labourbureau.nic.in/cpw3t836.htm#t838.

Hi Numberuno,

In India, especially in the government sector, employees are paid at a fixed pay scale which needs to be reviewed by the "Pay Commission" every 5 years.

Meanwhile, employees would receive a fixed increment as per the previous "Pay Commission's" recommendation. In this case, to adjust the net salary against the inflation rate of the area, the government provides "Dearness Allowance" (percentage of basic salary), which practically increases their basic salary as everything else is then calculated based on "Basic+DA." For example, if a 20% house rent on basic is given as an allowance, it will then be converted to 20% of "Basic + DA."

The act passed for this purpose is provided below:

THE ALL INDIA SERVICES (DEARNESS ALLOWANCE) RULES, 1972

In exercise of the powers conferred by subsection (1) of Section 3 of the All India Services Act, 1951 (61 of 1951), the Central Government, after consultation with the Governments of the States concerned, hereby makes the following rules, namely:

1. Short title and commencement:

These rules may be called the All-India Services (Dearness Allowances) Rules, 1972. They shall come into force on the first day of April 1972.

2. Definition:

In these rules, unless the context otherwise requires "a member of the Service" means a member of an All-India Service as defined in Section 2 of the All-India Services Act, 1951 (61 of 1951).

3. Regulation of dearness allowance:

Every member of the Service and every officer, whose initial pay is fixed in accordance with sub-rule (5) or sub-rule (6-A) of rule 4 of the Indian Administrative Service (Pay) Rules, 1954, or sub-rule (5) of rule 4 of the Indian Police Service (Pay) Rules, 1954, or sub-rule (6) of rule 4 of the Indian Forest Service (Pay) Rules, 1968, shall be entitled to draw dearness allowance at such rates, and subject to such conditions, as may be specified by the Central Government, from time to time, in respect of the officers of Central Civil Services, Class I.

4. Interpretation:

If any question arises as to the interpretation of these rules, it shall be referred to the Central Government for decision.

(No. 1/13/70-AIS(II), dated the 18th March 1972).

Substituted vide Department of Personnel & A R Notification No. 22/1/74-AIS(II), dated 28th January 1975.

Please review the corrected text for any necessary adjustments.

Hi, everyone!

What is DA?

Dearness Allowance is a kind of allowance given to workers to bear the cost of living due to inflation, so that they can at least live their lives in "some comfort."

DA is a temporary component of a salary. It was introduced in the 1950s or 1960s (I don't remember the exact date) and was said to be "taken back" in the future when the prices of general commodities would decrease. However, it has never been taken back due to the rising prices of general commodities year after year. :)

Actually, basic pay is an amount the organization pays to an employee for their work based on their merit. Year after year, with experience, an increment is given, enhancing the basic pay.

House rent allowance is payable only when an employee migrates and is placed somewhere solely due to their employment.

Dearness allowance is a concept derived from the socialistic pattern of our politics after independence. It is meant to compensate for the increase in commodity prices and is calculated according to the price index published by the statistical department, considering important commodities' prices. If DA is increased, it is not something to be enjoyed because market prices have already risen, and it will not become your savings.

However, our FM PC can decide to cut or take it away through taxes at any time.

DA in today's time is primarily relevant to wages paid to the workers, as someone rightly mentioned. We are a socialistic country, and not to staff who, today by and large, are comparatively better off.

Workers' DA is calculated on a monthly basis, which varies based on the index released by the government.

Rajat

In India, Dearness Allowance (D.A.) is part of a person's salary. D.A. is calculated as a percentage of the basic salary. This amount is then added to the basic salary along with house rent allowance to get the total salary. Rates vary as per rural/urban areas etc. :)

Please tell me what percentage of the basic salary is allocated for Dearness Allowance (DA) and in which conditions it is provided to employees.

Mr. Mirza,

Would you please provide me with the full process of how to calculate VDA?

Regards,
Purshottam Saini

Dear friends,

Herewith, I am attaching an Excel file showing the DA calculations.

Thanks & Regards,
S. Pradeep.

Dear Sir/Madam,

If someone's salary is $5000 and we want to enroll them in PF, how should we break down their salary so that we can pay their PF amount based on their basic salary? Additionally, where and how do we adjust the remaining amount of their salary?

Thank you.

Regards,
Atif

Dear all,

I just want to know if an employee on probation period is eligible for EL and Bonus as per the Factory Act of 1948 (salary Rs. 13000 per month).

Regards,
Atif

Understanding Dearness Allowance (DA) Calculation

Considering the living cost and all, wage revision is typically conducted once every five or ten years. However, inflation continues to rise daily, leading to a decrease in the value of money. Waiting until the next wage revision to compensate for this is often impractical, which is why the concept of Dearness Allowance (DA) was introduced.

The devaluation of money can be assessed through indices such as the Wholesale Price Index and the All India Consumer Price Index. The key distinction between these two indices lies in the fact that the Wholesale Price Index considers price variations of all commodities, whereas the All India Consumer Price Index focuses on a specific consumer group, such as industrial workers, and a designated set of goods and services known as the "Basket of goods."

Calculation and Adjustment of Industrial Dearness Allowance (DA)

Based on the All India Consumer Price Index, Industrial Dearness Allowance (DA) is paid and adjusted quarterly starting from January, April, July, and October. For instance, the AICPI for January is calculated as the average of the previous September, October, and November figures. Similarly, the April calculation considers December, January, and February; July considers March, April, and May; and October considers June, July, and August.

When full compensation for money devaluation is achieved, it is referred to as full DA neutralization. The formula for full DA neutralization is calculated as (Total points - Base points) / Base points (in percentage). The All India Consumer Price Index was introduced in India in 1960 and subsequently revised in 1982 and 2001. By multiplying the AICPI of 2001 by 4.63, we obtain the AICPI of 1982, and by multiplying the AICPI of 1982 by 4.93, we derive the AICPI of 1960. The AICPI of 1960 serves as the base for DA calculation.

Wage Settlement Terms and DA Calculation Example

In India, there are primarily two wage settlement terms in existence: Wage Settlements of 1.1.1997 and 1.1.2007. The base point for 1.1.1997 is 1708, while for 1.1.2007, it is 2884.

For instance, let's consider the calculation of AICPI for July '10. This involves averaging the figures from the previous March, April, and May, which are recorded as 170, 170, and 172 (Base year 2001). Multiplying these figures by 4.63 and rounding, we obtain 787, 787, and 796 (Base year 1982). Further multiplying by 4.93 and rounding, we get 3880, 3880, and 3924 (Base year 1960). Averaging these three results and rounding yields 3895.

For the DA calculation for the 1.1.1997 scale, the total points are 3895, the base points are 1708, and the difference is 2187. The percentage is calculated as 2187/1708 x 100 = 128.0 (correct to one decimal).

Regarding the DA calculation for the 1.1.2007 scale, the total points are 3895, the base points are 2884, and the difference is 1011. The percentage is calculated as 1011/2884 x 100 = 35.1 (correct to one decimal).

I will include an Excel sheet for IDA calculation effective from 1.10.2008. You may extend the rows as needed and input the three indexes towards the year 2001 in green columns. The results will be displayed in yellow, while red is reserved for static information.

Regards,

ABBAS.P.S, Secretary, ITI Employees' Association, ITI Limited, PALAKKAD - 678 623, KERALA, INDIA. [Phone Number Removed For Privacy Reasons]

AICPI (base 2001) can be found on the following site: Labour Statistics Page 2

Dear Prakash, I have detailed the calculation of Industrial DA above and have also inserted the Excel sheet. So, why do you ask this question?

As per the All India Consumer Price Index of June and July, the projected figure of IDA effective from 1st October 2010 for Revised Scales (1st January 2007 scales) is 39.8% (an increase of 4.7%), and for Pre-revised Scales (1st January 1997 scales) is 136.1% (an increase of 8.1%).

Regards,
Abbas.P.S

Could anyone please explain to me whether Dearness Allowance can be a negotiable element when forming a Workmen Agreement if the wages paid to the workmen are more than the Minimum Wages? For support, please attach any case law if available.

Thanks,

Regards

Dearness Allowance Calculation for Transportation Workers

I am running a transportation company with more than 800 workers. The Union leaders are claiming DA at a particular amount. However, I am sure even they do not know what they are talking about. They have never heard about the Simla index. For Motor Transport workers, the DA has to be paid at Rs. 2 per mensum for points above 1000 points. Now, my problem is what are the present points and how to arrive at the points.

Questions on Linking Factor and Indices

Is the Linking Factor the same as the inflation rate? Are Indices and Points the same?

Somebody has to help me solve this problem.

Regards,
T.T. Kuruvilla

Understanding Dearness Allowance (DA) Calculation

I too came here to search for the same thing - "the percentage of Dearness Allowance (DA)." This is what I have found, and it will help you. After surfing a lot, I have come to believe that DA is not a fixed percentage of the Basic pay. It can be calculated with the help of the formula given below. You will need the Consumer Price Index (CPI) to calculate it. Search for it on the internet.

If you can't find the CPI and find the calculation difficult, you can proceed with 50% to 60% of the Basic pay as DA. This information was also provided by one of our senior members. According to me, it is okay to keep DA between 50% to 60% as it is not fixed anyway.

Calculation of Dearness Allowance Formula

[(average AICPI for the last 12 months - 115.76) * 100] / 115.76

For 01/01/2007 D.A calculation: Average AICPI in the year 2007 is 118.95. DA on 01/01/2007 = [{118.95 - 115.76} * 100] / 115.76 = 2%

Hope that helps.