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Dearness Allowance - A Complete Overview Research Team | Posted On Wednesday, May 22,2019, 03:27 PM

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Dearness Allowance - A Complete Overview



What is Dearness Allowance?

Employees working for the government in the public sector, receive salaries that are divided into several components. Dearness allowance is an essential component along with other components like basic pay, provident fund, gratuity and so on. Dearness allowance is paid to government employees and pensioners to manage expenses in these inflationary times.

Dearness allowance safeguards government employees from the negative impact of inflation and the rise in prices of commodities. The Pay Commission has been given the task of revising and modifying the dearness allowance. The calculation of dearness allowance is based on the customer price index or CPI which measures retail inflation in India.

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Dearness Allowance - A Complete Overview:

The payment of dearness allowance is an important factor for workers and employees in the government sector. This component balances the rise in expenditure and the cost of living. The dearness allowance is also allotted based on the location/ place of residence of the employees and the pensioners. The dearness allowance is basically a component of remuneration, which is aimed at protecting employees from inflation. Under the Budget Session 2018, the Central Government employees received a dearness allowance hike of 2%. This step benefitted the central government pensioners.

Calculation of Dearness Allowance:

Dearness allowance is an important component in the salaries and pension received by the central government employees. The dearness allowance protects employees from the rise in prices of goods and services with time. The formula used for calculating dearness allowance is as follows:

DA for Employees of the Central Government:

Percentage of Dearness allowance: {[average of all India customer price index (base year 2001 = 100) for the last 12 months -115.76] / 115.76} * 100

Types of Dearness Allowance:

Dearness allowance is categorized into two types for easy calculations.

  • Industrial Dearness Allowance: Industrial dearness allowance is offered to the public sector employees as well as pensioners. The industrial dearness allowance is subject to quarterly revision based on the consumer price index. The government has also introduced various benefits and allowances for government employees. Industrial Dearness Allowance has recently been hiked from 5% to 7%.
  • Variable Dearness Allowance: The variable dearness allowance is mainly paid to central government employees. The variable dearness allowance is revised every six months and the changes in the payment are carried out on the basis of increase or decrease in the customer price index.

Role of Pay Commission:

The pay commission is authorized with the task of revising the salaries and the pensions of the central government employees by taking into account the various components of their salaries. The commission includes DA in their subsequent commission reports. The changes in DA are reflected in the salaries after revision. The pensioners also get the revised pension. While making changes, the pay commission incorporates the various components of the salary of employees working in the public sector. The method of revision also incorporates periodic revision of the multiplication factor included in the formula used for DA calculation.

Dearness Allowance for Pensioners:

The quarterly changes in dearness allowance are also reflected in the pension received by the central government employees. Retired central government employees are eligible to receive individual or family pension from the government. Each time there is a revision of dearness allowance by the pay commission, the pension is also revised for the central government pensioners.

The allowance is changed by a certain percentage and the change is reflected in the pensions accordingly. The change in percentage is also dependent on the place of residence of the pensioners. A hike in dearness allowance helps pensioners cope with inflation and price rise in commodities.

Difference Between DA and HRA:

DA stands for dearness allowance whereas HRA is the house rent allowance. People are often confused and cannot differentiate between the two of them. There are several differences between DA and HRA. House Rent Allowance is offered to all employees working in the organized sector i.e. both public and private sector whereas dearness allowance is mainly offered to employees working in the government sector. There are tax benefits on HRA, but none on the Dearness Allowance.

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