Dear Sridevi,
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.