Understanding DA, IDA, and VDA: What's the Difference and How Are They Calculated?

Hello! Could anyone please tell me the basic difference between DA (Dearness Allowance)/IDA and VDA (Variable Dearness Allowance)? How is it calculated?

You see, the cost of living is not static and continues to increase or even decrease depending upon the inflationary trends in an economy. The pay structure is devised to take into consideration the effect of such increase or decrease in the cost of living. The pay is divided into basic pay and dearness pay. The basic pay will increase as per the slabs provided for that. The dearness allowance, whether called IDA/VDA, will increase or decrease as per the price index. The price index may be the All India Price Index for Industrial Workers or such other index as may be adopted for the purpose of calculation. In the case of industrial workers, the All India Price Index is normally adopted. Thus, when the price index goes up, the dearness portion of the salary goes up and vice versa.

Deepak Thukral

Thank you, Deepak. Could you please tell me how Variable Dearness Allowance differs from Dearness Allowance? I guess both are calculated differently.

Pubali

Dear Pubali,

Variable Dearness Allowance is a part of Dearness Allowance. Dearness Allowances generally are divided into FDA (Fixed Dearness Allowance) and VDA (Variable Dearness Allowance) in private sectors. In government organizations, the DA is directly linked to the Cost of Living Index.

In the case of FDA & VDA present in a salary structure, it is calculated as follows (here again, the DA Points with respect to a Cost of Living Index base - you can get this in the Chamber of Commerce and other forums):

Total DA points, say 100. FDA frozen for 70 points @ Rs. x. (This freezing of points and FDA amount will vary from one organization to another depending on the number of settlements made/number of years the organization exists.) VDA calculated for the balance 30 points at a rate agreed/arrived at.

Regards,
Balaji

I would like to shed some more light on the aspect between fixed DA and variable DA. Suppose the price index for industrial workers as of 30.09.2006 is 1000. Now, the increase or decrease in the price index during the upcoming period shall be a few points more or less than 1000 in the near future. The price index is not going to fall below 600 points. This is highly certain based on past experience.

Thus, at the time of negotiating with the workers, the management may safely agree that workers will receive a certain sum as fixed Dearness Allowance to neutralize the cost of living up to 600 points. This implies that workers will now receive variable DA in addition to fixed DA, beyond 600 points at the agreed rate. Technically, there is no difference between fixed DA and variable DA. Both are taken into consideration for the purpose of calculating retirement or terminal benefits such as leave encashment, gratuity, etc.

Deepak Thukral
Chandigarh