HOW TO CALCULATE DEARNESS ALLOWANCE

HOW TO CALCULATE DEARNESS ALLOWANCE

Estimate Dearness Allowance using ACPI-IW

Needless to say, dearness allowance is an important component of our salary in this inflationary trend. It is based on monthly All India Consumer Price Index for Industrial Workers (Base year 2001=100) announced by the Government from time to time.

Check this Labour Bureau, Department Statistics, Government of India website to know about CPI-IW index published every month.

After implementation of sixth pay commission report, Government ordered that the dearness allowance has to be calculated based on CPI-IW index with the base year 2001=100.

So, DA with effect from the period 1.1.2006, has to be calculated using average Price CPI-IW index of 536 for 2005 (base 1982=100) adjusted to the base year 2001=100 by dividing the same with the Linking Factor between 1982 and 2001 Series which is 4.63. As a result, the average consumer price index (Industrial workers) for 12 months in 2005 (base 2001=100) was worked out to 115.76.

How to calculate Dearness Allowance from the year 2006, twice a year using this average index? It’s quite simple. Say, if you want to calculate Dearness Allowance with effect from Jan-06, get the average of monthly All India Consumer Price Index (IW) with the base year 2001=100 for the preceding 12 months and apply the same in the following formula

Click here to know about the formula for calculating Dearness Allowance using AICPI-IW


Dearness Allowance = (Avg of AICPI for the past 12 months – 115.76)*100/115.76

For example if you want to calculate DA with effect from 1.1.2006, get the average of AICPI for the period from 1.1.2005 to 31.12.2005, which is 115.76 and apply the same in the formula as follows

DA with effect from 1.1.2006 = (115.76-115.76)*100/115.76
= 0%
DA w.e.f 1.07.2006 = (118.95-115.76)*100/115.76
= 2%

Like wise DA with effect from 1.1.2007, 1.7.2007, 1.1.2008, 1.7.2008, 1.1.2009, and 1.7.2009 were calculated as 6%, 9%, 12%, 16%, 22%, and 27% respectively.

For your convenience, here is a small and smart tool that can calculate the dearness allowance with effect from January or July of a particular year in the future, once the AICPI(IW) till the previous month is published by the Government and you fill up the same in this tool.

This AICPI (IW) (base year 2001=100) for each month would be available in the Labour Bureau, Department Statistics, Government of India website and would be updated each month. Any way we will update the DA calculator tool with the latest AICPI (IW) for each month once the same is published Government.

Check this Dearness Allowance Calculating tool

Source: GConnect