City Compensatory Allowance (CCA)

In a world of cutthroat corporate competition, it becomes vital for the companies to provide their employees with the best perks to retain them. The most prominent reason for employees seeking a switch from their current job is a salary hike. This is because every individual tries to create a comfortable lifestyle in a metropolitan city whilst striving to maintain the developed standard of living. However, this is not a facile task and takes a huge portion of an individual’s income. All this comes together to form the requirement of appropriate salary and benefits like city compensatory allowance.

Along with city compensatory allowance, there are other allowances given to the employees of a company in addition to their basic salaries. To put it simply, a CCA in salary is given to the employees living in Tier-1 cities like Bangalore or Mumbai. This article is all about the elements revolving around city compensatory allowance. To know further about this allowance, keep reading!

What is City Compensatory Allowance

A city compensatory allowance is offered by the companies of the private sector or public sector to its employees to compensate for the huge cost of living in metropolitan cities or Tier-1 cities. In certain cases, the companies offer a CCA in salary to the employees working in Tier-2 cities as well. It is the employer’s discretion that decides the city compensatory allowance offered to the employees. The grade and pay scale of an employee formulates the CCA and basic salary is not taken into consideration for this allowance. Thus, there is a difference in CCA offered in various cities. For example, a person working in Mumbai will receive a higher amount of CCA as compared to the one working in Delhi. In regard to taxation, there is no lower limit or upper limit; any city compensatory allowance that is over ₹900 is taxable.

Eligibility Criteria of CCA

Every employee, be it from private sector companies or public sector companies can get the city compensatory allowance. Though there are no set criteria for the applicability of a city compensatory allowance, it is usually given to mid-level or low-level employees to ease the task of maintaining the high cost of living in Tier-1 or metropolitan cities. One reason why higher grade employees are not offered a city compensatory allowance is that their salaries are formulated by keeping in mind the high cost of living standards in metropolitan cities.

Certain categories of employees are eligible for city compensatory allowance because they live in big cities and their companies are registered under the Companies Act. One should know that there is no limit to the amount offered as city compensatory allowance to an employee, it completely depends on the discretion of the employer.

CCA Calculation

The employers of a company are responsible for calculating and setting the city compensatory allowance. The pay chart to be followed is also determined by the employer such that it does not breach any of the labour laws. The cost-of-living index of a specific city is taken into consideration and put together with the employment policies to perform the CCA calculation. City Compensatory Allowance is offered to the employees of a private company as a fixed amount and not as a percentage of their basic salary as the pay grades differ with the various positions in the company.

For the individuals with employment under the Central Government Departments and Public Sector Undertakings, the city compensatory allowance is given out as a percentage of their CTC or Cost to Company, which can range from 10% to 20%. Generally, the city compensatory allowance for individuals living in the same city will be equal and the grade of the employee is not taken into consideration. This concludes that the city compensatory allowance will be the same for every employee, be it a clerk or manager living in the same city.

The Upper Limit and Lower Limit of CCA in Salary

Similar to the information mentioned above, there are no set regulations and rules that are considered before formulating the city compensatory allowance. It completely depends on the employer’s discretion to offer a certain amount as CCA. If an employer is not offering the city compensatory allowance to an individual working in a metropolitan area, one should know that they are not obliged to give CCA under any law. The employer has all the room to either give out a well-bifurcated salary with clear break-ups or to give out a consolidated salary to its employees. In general, there are no minimum or maximum limits of the city compensatory allowance offered to the employees.

Taxation on the City Compensatory Allowance

As per the Income Tax Laws, any amount of city compensatory allowance is completely taxable without any exceptions or exemptions. To calculate the income tax, the city compensatory allowance is summed up with the basic salary and the net payable tax is calculated as per the applicable tax rate.

What is CCA in salary?

The amount of city compensatory allowance is completely dependent on the discretion of the company that is paying the salary. One can access the salary slips for knowing the amount of city compensatory allowance offered to them. It is vital to note that the city compensatory allowance is offered apart from the basic salary of an employee.

Exemption Limit of City Compensatory Allowance and Allowance Rates

In the calculation of income tax, there are no exemptions for city compensatory allowance. The CCA will be added to the basic salary of the employee and the taxation will be done as per the set tax bracket. The allowance rate of city compensatory allowance does not have any minimum or maximum limit as it is completely dependent on the employer’s discretion.

Difference between Dearness Allowance, House Rent Allowance and City Compensatory Allowance

All the three allowances are the important allowances given by the company to its employees. Though there are similarities in these three allowances, they stand different in some aspects. Here’s how they differ from each other:

Dearness Allowance – This allowance is offered to the employees to help them keep up with the increasing inflation and it is formulated as a percentage of the employee’s basic salary. For the purpose of tax calculation, the dearness allowance is added to the salary and DA is completely taxable.
House Rent Allowance – The employer offers the house rent allowance to the employees for compensating the cost of living in rented accommodation. This allowance is calculated as a set percentage of an employee’s basic salary. One can claim a sum of up to INR 1,00,000 as a deduction during tax calculation, provided that they are able to present the rent receipts from the landlord.
City Compensatory Allowance – This type of allowance is offered to the employees in order to compensate for the high cost of living in a metropolitan city. City Compensatory Allowance is free of the basic salary amount and is completely centred at the employer’s discretion. One should know that the CCA amount is fully taxable and is given as a fixed amount, not as a percentage of the basic salary.
In Conclusion – Now that we have all the information about the city compensatory allowance, you can go ahead and avail the benefits of this allowance, if your employer’s discretion inclines towards providing it.