What does Dearness Allowance (DA) compensate for?

Dearness Allowance (DA) is a component of salary paid to employees to compensate for the erosion in purchasing power due to inflation.

When prices of goods and services increase over time (inflation), the real value or purchasing power of a fixed salary decreases. An employee can buy less with the same amount of money. DA is provided to offset this loss.

DA is typically calculated as a percentage of basic salary and is revised periodically based on changes in the cost of living index or inflation rates. This ensures that employees can maintain their standard of living despite rising prices.

The other options represent different types of allowances:

• Housing expenses → House Rent Allowance (HRA)
• Fuel charges → Not a standard allowance component
• Commuting cost → Conveyance Allowance or Transport Allowance

Therefore, Option 3 is correct.