<P> The Dearness Allowance (DA) is a cost of living adjustment allowance paid to Government employees, Public sector employees (PSU) and pensioners in India, Bangladesh and Pakisan . </P> <P> Dearness Allowance is calculated as a percentage of an Indian citizen's basic salary to mitigate the impact of inflation on people . Indian citizens may receive a basic salary or pension that is then supplemented by a housing or a dearness allowance, or both . The guidelines that govern the DA vary according to where one lives . DA is a fully taxable allowance...Two types: 1) DA given under terms of employment 2) DA not given under the terms of employment </P> <P> The Dearness Allowance was introduced following the second World War, and was then known as the "Dear Food Allowance". The "Old Textile Allowance" was also introduced in 1947, though this was revised and reintroduced in 1953 as the "Revised Textile Allowance". Initially DA was given in response to demand of employees for wage revision, however later it was linked to Consumer Price Index . In the past various committees have been constituted to look into the issue of payment of D.A. to Central Government employees . The III Central Pay Commission recommended payment of DA whenever the CPI rose by 8 points over the index of 200 (with base 1960 = 100). The extent of neutralisation granted with effect from 1 - 1 - 1973 ranged from 100% to 35% . The IV Central Pay Commission recommended the grant of DA on a' percentage system' of the basic pay (1986). It also recommended payment of DA twice a year; 1 January and 1 July. Each instalment of DA was to be calculated with reference to the percentage increase in the 12 monthly average of All India Consumer Price Index (base 1960). The extent of neutralisation now ranged from 100% to 65% . The V Central Pay Commission looked into the issue of differential neutralisation and found it to be injustice to senior officers and recommended uniform neutralization of 100% to employees at all levels . The Commission had suggested that dearness allowance should be converted into dearness pay every time the cost of living rises by 50% over the base level . The VI Central Pay Commission recommended revision of base year of the Consumer Price Index (CPI) as frequently as feasible.It also changed base year for DA calculation to 2001 (base year 2001 = 100) </P> <P> Formula for calculating Dearness Allowance for Central government employees after 1.1. 2006 is: </P>

Basis of determining dearness allowance to employee in india is