No, the private sector employees in India are not entitled to receive Dearness Allowance as a part of their salary. Dearness Allowance Means: In India, Dearness allowance (D.A.) Same is the case with Dearness Allowance; every time DA is increased by a certain percentage, the same change gets reflected in the pensions of retired public sector employees. In January 2016, the Dearness allowance rates have reached at 125%. This came as a significant relief for all these beneficiaries as their Dearness Allowance was enhanced from 5% to 7%. Basic Salary – Definition. Calculation Of The Dearness Allowance. Display of any trademarks, tradenames, logos and other subject matters of intellectual property belong to their respective intellectual property owners. One such important component is. In the meantime, employees from the public sector are ecstatic with anticipation of a merged DA which would mean a major hike in their salaries. The formula to calculate the dearness allowance was changed in 2006 by the Government. ClearTax can also help you in getting your business registered for Goods & Services Tax Law. On the basis of the recommendation of the 7th Pay Commission, the cost of this hike will go up to Rs.16,000 crore and will be effective from July 2019. Pension revision for the retired employees of the public sector is done whenever a Pay Commission proposes a new salary structure. Request received - loud & clear!Returning you to where you were... (You can save searches, track your apps & save plenty of time!). As the impact of inflation varies according to the location of the employee, dearness allowance is calculated accordingly. Once in twice or once in six months, the percentage of Dearness Allowance is increased based on the Consumer Price Index for Industrial Workers Base Year 2001=100. No, Dearness Allowance and House Rent Allowance are two different items of you Salary. Since the year 2006, the dearness allowance for employees from the public sector has been continuously growing. The current DA rate stands at 21% as part of pension and salary. This decision is set to benefit all board level executives, officers and employees of central PSUs. Get more Personal Finance News and Business News on Zee Business. Since, DA is directly related to the cost of living, the DA component is different for different employees based on their location. It, therefore, becomes essential for the government to shield its employees from the adverse effects of inflation. The given below is the salary breakup calculator to know the individual amounts of your basic salary. The memorandum is dated as on April 23th, 2020. ClearTax serves 2.5+ Million happy customers, 20000+ CAs & tax experts & 10000+ businesses across India. It solely depends on employers. All public sector employers pay basic salaries to their employees according to the respective pay scale. Based on this figure, the DA of employees is revised and rolled out. Please re-enter your phone number. 49000. One significant difference is that HRA applies to both private and public sector employees, while only public sector employees are entitled to DA. As DA is provided to employees to protect against the price rise in a particular financial year, it is calculated twice every year – in January and July. Ltd. All public sector employers pay basic salaries to their employees according to the respective pay scale. Dearness Allowance is calculated as a percentage of an basic salary.The guidelines that govern the DA vary according to where one lives (for example, whether rural or urban). Dearness allowance is calculated based on the inflation of the prices in the market. After the Second World War, DA component was introduced by the government. That means the rate gets hiked by 6% for the central government employees. Presently, DA is calculated as per the following formula: % of DA = {(Average of the All-India Consumer Price Index (Base year -2001 =100) for the last 12 months -115.76)/115.76} x 100, % of DA = {(Average of the All-India Consumer Price Index (Base year -2001 =100) for the last 3 months -126.33)/126.33} x 100. If you do not get commissions or dearness allowance then the house rent allowance will be 40 percent or 50 percent of your basic salary. The state government also announced that the additional instalments of the Dearness Allowance and Dearness Relief which was due from 1 July 2020 and 1 January 2021 will not be paid. It is announced twice a year, the first installment from January to June and the second from July to December. Basic salary is a fixed amount to be paid to an employee addition of any allowances or subtraction any deductions. According to various sources, 40% of the arrear amount between January 1st, 2016 and August 31st, 2017 was disbursed during the financial year 2017-2018. With the new budget, came a lot of new advancements and developments. (VDA) applies to the employees of the Central Government. In addition to this, the freezing of DA and DR till July 2021 will help the Centre around Rs.37,500 crore and the state Rs.82,500 crore and this amount will be used in helping the government tackle COVID-19 in the state as a stimulus package. As a rule, it is practice to merge the DA with the basic salary once the DA percentage breaches the 50% mark. The memorandum also states that the beneficiaries will not receive any arrears from January 1st, 2020 to June 30th, 2021. is merged with the basic salary of an employee when it exceeds the limit of 50%. DA to private sector employees is not mandatory by law. Reviewing and changing the multiplication factor also comes under the purview of the pay commissions. In fact, the law also requires to maintain the basic salary and dearness allowance in such proportion. Since, DA is directly related to the cost of living, the DA component is different for different employees based on their location. Ever since the revision of the calculation formula, the DA for public sector and central government employees has been consistently rising. In case employees are provided with rent free accommodation that is unfurnished wherein all prerequisites are met, Dearness allowance is a part of the salary to the extent wherein it forms a part of the retirement benefit salary. Basically, Dearness Allowance is understood as a component of salary which is a fixed percentage of an employee’s basic salary, which aims to hedge the impact of inflation. The Central government has also frozen the hike in inflation-linked allowance. It is mandatory for you to contribute 12% of your basic … According to various sources, the increase in DA will benefit around 3.5 lakh employees. What came as a huge relief to most central government employees was the hike in the Dearness Allowance. As of today, the DA is 50% of the employee’s basic salary after years of a steady increase in the DA percentage. However, a revision will be put in to effect on July 1st, 2021 and this will also take the previous hikes under consideration. (IDA) applies to the Public sector employees of Central Government. For calculation, DA is divided into two separate categories: Industrial Dearness Allowance and Variable Dearness Allowance. Dearness Allowance increased by 5% from 12% to 17% from July 2019. House Rent Allowance HRA, which is part of the basic salary, is fully or partially exempt from taxes. Dearness Allowance- Dearness allowance is a certain percentage of the basic salary paid to employees, aimed at mitigating the impact of inflation. Dearness Allowance Calculations. These changes are going to significantly benefit all the employees and pensioners of the Central Government. HRA is applicable to both employees from the private sector as well as the public sector whereas DA is majorly applicable to employees working in the public sector. The salary is taken for the period the employee occupies the accommodation. The Union Cabinet announced a raise of 2% in the DA of government employees recently. VDA in itself is dependant on three different components as given below. VAD or Variable dearness allowance is the allowance that comes as a result of revision every six months for central government employees. The demand has been raised with the Government, and a decision is soon expected on these lines. This has happened over a number of years during which the DA percentage rose steadily in order to hedge the rising inflation. January and July. is revised by a certain percentage, the pension of the retired employees undergoes revision accordingly. DA (Dearness Allowance) = 2% to 4% of Basic Salary. It is a part of your take-home amount. From the year 1996, DA has been included to compensate for price rise or inflation in a particular financial year and hence it is revised twice every year, once in January and then in July. According to fresh media reports, the government has decided to increased dearness allowance by 4 percent, thus meaning, the dearness allowance of central employees will increase from 17 percent to 21 percent. For all the other cities you are entitled to 40 percent of your salary. Changes in Dearness Allowance as per the Budget 2018 As per an estimate, there are more than 50-lakh central government employees who receive the salary from the government. Despite several measures by the government to control the rate of inflation, only partial success has been achieved because the prices move according to the market. Since D.A. Demands for merging the DA with the basic salary have been with the government for quite some time. grants public sector pensioners and family pensioners D.A. Due to the novel pandemic COVID-19, the Chief Minister of Haryana, Manohar Lal Khattar and the government of Haryana took a call to freeze the Dearness Allowance of the employees and the Dearness Relief for the pensioners till July 2021, according to an official statement put out by the Haryana Finance Department. Dearness Allowance is calculated as a percentage of an Indian citizen's basic salary to mitigate the impact of inflation on people. The Union Cabinet has recently announced a hike of 5% in the DA for employees and pensioners. during Income Tax Return (ITR) filing. Only the CPI or Consumer Price Index changes every month and affects the overall value of the variable dearness allowance. There are three components that make up VAD. The Odisha government also announced that the 10% arrears that are pending due to the recommendations of the 7th Pay Commission will be cleared. This page is best viewed in Chrome, Firefox or IE 11. As per the rules, it is a practice to merge the DA with basic salary when it crosses the level of 50%. The pay commission must evaluate and change the salaries of public sector employees based on the various components that make up the final salary of an employee. Likewise, if the Dearness Allowance is changed by a particular percentage, the pension of the retired personnel is revised accordingly. Pensioners who are staying abroad without reemployment are allowed to receive D.A. You can efile income tax return on your income from salary, house property, capital gains, business & profession and income from other sources. You will receive a call shortly from our customer support. Presently, it stands at 50% of the basic salary. Similarly, whenever the D.A. Pay commissions take into account all the factors that feed into the calculation of salaries of personnel in the public sector. Uh-oh! Indian citizens may receive a basic salary or pension that is then … Since, this allowance is related to the cost of living, the Dearness Allowance component differs for various employees based on their location. The union cabinet is expected to take a decision on this matter soon. Except for this, in all other cases of reemployment, D.A. Which is combined with HRA. His dearness allowance is 40% of basic salary, and house rent allowance is 20% of basic salary. is part of a person's salary. DA is reviewed biannually, once in every 6 months, on the basis of the cost of living index. Our GST Software helps CAs, tax experts & business to manage returns & invoices in an easy manner. is granted to a re-employed pensioner depending on the limit of the last drawn emoluments. The effective salary of government employees requires constant enhancement to help them cope up with the increasing prices. In order to lessen inflation effects on the salaries of these employees, the dearness allowance hike is usually offered to pensioners and staffers. Privacy Policy. is not granted to pensioners while they are staying in any place outside India during reemployment. If the employee has been provided with an unfurnished rent-free accommodation, it becomes that part of the salary up to which it forms the retirement benefit salary of the employee, provided that all other pre-conditions are met. Act mandates that Tax liability for D.A. Cabinet has recently announced a raise of %... 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