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Tuesday 21 January 2020

Dearness allowance: Brighter Diwali for 1.11 crore Indians

100% of taxpayers will bear a cost of Rs 16,000 crore to fund the dearness allowance to ensure the Diwali of 0.83% of the Indian population is brighter

The Union government has given a big gift to the central employees before Diwali. The Cabinet has announced an increase in dearness allowance by 5%. The Cabinet headed by Prime Minister Narendra Modi approved the hike today, 9 October.

The central government employees will get the dearness allowance with a retrospective effect from July 2019 onwards. This, sources said, was the government’s idea of helping its employees cope with inflation.

The increase in dearness allowance happens according to a fixed formula, which is based on the suggestions of the Seventh Central Pay Commission. This will benefit 48 lakh central employees and 63 lakh pensioners. Prakash Javadekar said about the decision that the government has given a gift to employees before Diwali. This will benefit about 1.11 crore employees and pensioners. That is 0.83% of the population of India, which is now about 133.92 crore.

The increase in the dearness allowance to 17% makes it a 5% hike. While this will greatly benefit the government sector employees, taxpayers of the entire country will bear a cost of Rs 16,000 crore to ensure the Diwali of a small percentage of them is brighter than that of others.

History of dearness allowance

The dearness allowance is a cost of living adjustment allowance paid to government employees, public sector employees and pensioners in India, Bangladesh and Pakistan.

Dearness allowance is calculated as a percentage of a government employee’s basic salary to mitigate the impact of inflation on him or her. An Indian government employee may receive a basic salary or pension that is then supplemented by housing or dearness allowance, or both. The guidelines that govern the DA vary according to where one lives.

Dearness allowance is a fully taxable allowance, which is of two types. It is given either under the terms of employment or not given under the terms of employment.

The dearness allowance was introduced following the Second World War, and was then known as the “dear food allowance”. The “old textile allowance” was introduced in 1947, too, though this was revised and reintroduced in 1953 as the “revised textile allowance”. Initially, the allowance was given in response to the demand of employees for wage revision. However, later, it was linked to the consumer price index.

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