The dearness allowance is a part of the total compensation a person receives for having performed his or her job. For example, workers in India might have a base salary or pension, along with an allowance for housing and the dearness allowance. D.A. is a percentage of the original salary. The percentage is reviewed and may be changed on a six-month cycle.
One explanation for D.A., according to work guidelines, is that the Dearness Allowance is provided to help against rise in prices for those on pension. This allowance may also be provided to family members receiving benefits from a worker’s pension. For example, a central government order might change the Dearness Allowance by 6 percent for employees of the main branch of government, due to new information about living expenses and price increases. The amount might be paid in a lump sum at some point to bring the overall pension and allowances up to what they should be.
There are also times when a new level of Dearness Allowance might be established along with housing and transportation allowances. This generally occurs when the overall pay schedule is revised. Base salary levels are reported separate from the various allowances. In India the D.A. has a history dating back to World War II. At that time, many of the lower-paid employees received D.A. based on their wages or salaries. Many changes to Dearness Allowance and its computations have occurred over the last 60 years, according to both private and government studies.
One guideline suggests that the D.A. is paid twice each year (January and July) based on a percentage of pay in two specific months. Numbers used to calculate the D.A. include 12-month average of pay and a set index level to get the percentage increase in prices/cost of living. Dearness Allowance is paid on a range of base-pay levels.
According to the systems developers at tech company Taranaga, the combination of a Dearness Allowance with base pay was approved by the Indian government in New Delhi in 2007. What happened was that the D.A. (that protects pensioners in case of a cost-of-living increase) was combined at a 50 percent level with base pay. One of the details included in the decision also set a “ceiling” for certain benefits. The decision means that those benefits will be calculated on base pay plus daily allowance, rather than just on base pay.
There are similar cost-of-living adjustments and indexes in the United States and other countries. Some of these operate in the same way as the Dearness Allowance in India, giving percentage increases to make up for rising costs. Others are allowances for workers who must live and work in areas where the general cost of housing and meals is higher than a certain base amount. For example, some federal government employees are paid an “overseas” allowance that makes their total pay a bit higher than what they might receive in the U.S. These allowances vary with the country and the location an employee is assigned to.