Dearness allowance, dearness pay under Tax Planning Considerations in Respect of Salary Income :

The employer should ensure that dearness allowance and dearness pay should form part of “salary”. This is because certain items like entertainment allowance, gratuity, commuted pension and the employer‘s contribution to the recognised provident fund etc. are calculated on the basis of salary. Therefore, if dearness allowance, dearness pay etc. are included in salary, the above benefits will also increase leading to higher exemption in the hands of the employee.