GUIDESMONEY MATTERS
Dearness Allowance (DA): Formula, Calculation & Definition
2 MIN • 
LAST EDITED BY SHEFAALI BOPANA ON AUGUST 21, 2024.
LAST EDITED BY SHEFAALI BOPANA ON AUGUST 21, 2024.
GUIDES LAST EDITED BY SHEFAALI BOPANA ON AUGUST 21, 2024.
In this blog, we explore what Dearness Allowance (DA) in salary means along with the DA calculation formula and examples.
The definition of Dearness allowance (DA) states that DA is paid to employees by the government or a company to compensate for the rising cost of living due to inflation. It is a cost-of-living adjustment typically calculated as a percentage of an employee's basic salary.
The DA is calculated using a formula and added to the basic salary. It varies between organisations. In India, it is a significant part of government employees' salaries and pensions and is revised by the government periodically.
The DA (Dearness Allowance) is a part of the salary that varies based on the cost of living in different regions for public sector employees. It changes twice a year, on January 1st and July 1st, and is increased by the government every six months. The DA rates are different in rural, urban, and semi-urban areas. The DA calculation formula helps us understand the Dearness Allowance in employees’ salary structure.
The total DA calculation in the salary of public sector employees includes different parts like House Rent Allowance (HRA), Conveyance Allowance, and more. In this DA calculation formula, AICPI stands for All-India Consumer Price Index.
Here's how DA is calculated in basic salary using the dearness allowance formula for central and public sector employees and pensioners:
Let's illustrate the DA calculation formula with an example involving Srishti who works in Chandigarh.
Hence, Srishti would be eligible for a Dearness Allowance (DA) of ₹3,750 in addition to her basic salary.
Remember: The actual calculation of DA may vary depending on factors such as the employer's policies, the base index used, the predefined factor, and the frequency of DA adjustments.
Dearness Allowance (DA) plays a crucial role in compensating employees for the rising cost of living caused by inflation. It is a cost-of-living adjustment added to the basic salary and varies between organizations. In India, DA is especially significant for government employees and pensioners, with periodic revisions by the government. The calculation of DA involves formulas based on the All-India Consumer Price Index (AICPI). Understanding the different types of DA, such as Industrial Dearness Allowance (IDA) and Variable Dearness Allowance (VAD), is essential. By incorporating DA into salaries, employees can mitigate the impact of inflation and maintain their standard of living.
Dearness Allowance (DA) is a part of an employee's salary that compensates for inflation and increasing living expenses. It is calculated as a percentage of the employee's basic salary and helps adjust for the cost of living. It directly affects the employee's overall salary and provides compensation for changes in the cost of living.
The Dearness Allowance (DA) calculation for Central Government Employees is as follows:
DA% = (Average of AICPI for last 12 months - 115.76) / 115.76 x 100
For Public Sector Employees, the DA calculation is as follows:
DA% = (Average of AICPI for last 3 months - 126.33) / 126.33 x 100
The calculation of Dearness Allowance (DA) is influenced by factors such as the All-India Consumer Price Index (AICPI) and changes in the cost of living, which determine the adjustment to an employee's salary.
