salary

The Dearness Allowance (DA) is a cost of living adjustment allowance paid to employees and pensioners.  Dearness Allowance is calculated as a percentage of basic salary to mitigate the impact of inflation on people.

The Dearness Allowance which is given to an employee depends on the discretion of the company. Most of the public sector units are bound to give Dearness Allowance with the salary of a person. The amount of Dearness Allowance to be given totally depends on the Government’s policy. Whereas a private company is not bound to give Dearness Allowance.

The private companies provide D.A. to its employees along with their salary. This assures the employees to meet their needs. The employees also gain a confidence in the company and this in return makes them more motivated and hence resulting in the economic growth.

It is at their own discretion and terms of contract with the employee to give D.A. A private company cannot be forced to give DA. Whenever D.A. is paid by the company, the same being part of its expenses, it can account for the same as its expenses and only the profit will get taxed. Therefore apart from treating the D.A. as the company’s business expenditure, there is no other Income Tax Exemption.