Understanding Variable Daily Allowance: How Do You Calculate It for Your Salary?

How to Calculate the Variable Daily Allowance (V.D.A.) in a Salary

To calculate the Variable Daily Allowance (V.D.A.) in a salary, you typically multiply the V.D.A. rate by the number of days the allowance applies to. The V.D.A. rate is usually set by the company or organization and can vary depending on factors such as location, job role, or company policy. Once you have the V.D.A. rate, you can then determine the total V.D.A. amount by multiplying it by the number of days the allowance is applicable. This total amount can then be added to the employee's salary or paid out separately, depending on the company's practices.

Understanding Wage Revision and Dearness Allowance (DA)

Considering the living cost and all, wage revision is being done once every five or ten years. However, inflation will continue to rise day by day, leading to a decrease in the value of money. Waiting until the next wage revision to compensate for this is not practical, which is why the dearness allowance (DA) is introduced.

The devaluation of money can be assessed through the Wholesale Price Index, All India Consumer Price Index, etc. The main difference between these two is that the Wholesale Price Index takes into account the price variation of all commodities.

Differences and Limitations of the All India Consumer Price Index

On the other hand, the All India Consumer Price Index has some specific differences and limitations:

• It focuses on a particular consumer, namely the Industrial Worker.
• It defines a specific set of goods and services known as the "basket of goods."
• It considers both the price variation of commodities and their consumable quantity.
• It selects 78 centers across India to calculate the average.

Based on the All India Consumer Price Index, industrial DA is paid in variable quarters starting from January, April, July, and October. For instance, the AICPI for January is the average of the previous September, October, and November. Similarly, for April, it is December, January, and February; for July, it is March, April, and May; and for October, it is June, July, and August.

Full DA Neutralization

When the devaluation of money is fully compensated, it is referred to as full DA neutralization. The formula for full DA neutralization is (Total points - Base points) / Base points (in percentage). The All India Consumer Price Index was introduced in India in 1960 and revised in 1982 and 2001. The AICPI of 2001 multiplied by 4.63 gives the AICPI of 1982, and the AICPI of 1982 multiplied by 4.93 gives the AICPI of 1960. For DA calculation, the AICPI of 1960 is considered as the base.

The indexes can be accessed from the web: Labor Statistics Page 2.

Wage Settlements in India

In India, mainly two terms of wage settlements exist: Wage Settlements of 1.1.1997 and 1.1.2007. The base point in 1.1.1997 is 1708, and in 1.1.2007, it is 2884.

I will provide one example regarding the calculation of AICPI for July '10. This is equivalent to the average of the previous March, April, and May, which are recorded as 170, 170, and 172 (Base year 2001). When multiplied by 4.63 and rounded, we get 787, 787, and 796 (Base year 1982). Further multiplication by 4.93 and rounding gives us 3880, 3880, and 3924 (Base year 1960). The average of these three values, when rounded, is 3895.

DA Calculation Examples

For the 1.1.97 scale, the DA calculation is as follows: Total points - 3895, Base points - 1708, Total - Base = 2187. The percentage is calculated as 2187/1708 x 100 = 128.0 (rounded to one decimal).

For the 1.1.2007 scale, the DA calculation is as follows: Total points - 3895, Base points - 2884, Total - Base = 1011. The percentage is calculated as 1011/2884 x 100 = 35.1 (rounded to one decimal).

Regards, Abbas.P.S