Explained: What is Dearness Allowance?

Dearness Allowance meaning, rate, news: Dearness Allowance (DA) is an allowance provided to central government employees by the government to compensate for the rising cost of living on account of inflation. The term ‘dearness’ in Dearness Allowance refers to the increased cost of living, which can cause financial hardship for employees, particularly those with fixed salaries.
Simply put, DA is aimed at ensuring that central government staff is able to protect and maintain their standard of living despite the rising cost of living. 

Dearness Allowance plays a crucial role in ensuring that employees maintain their purchasing power despite inflation. It helps in adjusting the salaries of employees to reflect the changing economic conditions and ensures that their standard of living is not compromised.

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Here are five things to know about Dearness Allowance: 

1. What is Dearness Allowance exactly? The take-home amount of salaries paid by public sector employers to their employees is determined by the basic salary and several important components such as Dearness Allowance. 

2. How is it calculated? The allowance is calculated as a percentage of the employee’s basic salary and is usually adjusted twice a year, depending on the inflation rate. It is calculated based on the Consumer Price Index (CPI). The formula to calculate DA involves taking the average of CPI for a specific period, based on which a percentage determined by a pre-defined formula is added to the basic salary of the eligible employee.

Read more on how to calculate DA

3. How often is it revised? Dearness Allowance is typically adjusted twice a year, by taking into account macroeconomic factors such as the prevalent inflation rate. The magnitude of revisions is arrived at using a formula based on 7th Central Pay Commission recommendations.

4. Is Dearness Allowance also applicable to private sector employees? No. 

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5. Does Dearness Allowance vary based on the employee's work location? Yes, Dearness Allowance may vary depending on an employee's work location, as it takes into account factors such as the cost of living index, housing expenses, and transportation costs. 

Dearness allowance latest news

On Thursday, the Cabinet approved an additional instalment of Dearness Allowance and Dearness Relief to central government employees and pensioners, with effect from April 1, 2024, amounting to a cost of Rs 12,868.7 crore per annum for the exchequer. The latest revision in Dearness Allowance is set to benefit about 49.2 lakh central government employees and almost 68 lakh pensioners.

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