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All about City Compensatory Allowance

[ecis2016.org] Know all about the city compensatory allowance including meaning, eligibility, calculator and limits

CCA full form is City Compensatory Allowance. It is an allowance provided by an employer (Public and private companies) to their employees as part of their salary to meet their cost of living. It is generally provided to employees of metropolitan cities, tier-1, and tier-2 cities to compensate for their higher living standards. It is a fixed monthly payment and is different across different cities, employee designation, and organisations.

CCA generally ranges from 10 to 20 % of the Cost to the Company (CTC). However, it remains fixed irrespective of the pay scale or employee designation. They vary from place to place and from company to company because CCA is determined either under the cost-of-living index or the company’s employment policies. There is no law governing CCA payments. Therefore, the general practices laid down are not indicative of any specific rules or regulations.

City Compensatory Allowance: Eligibility to claim 

While there is no eligibility criteria for claiming CCA  companies do offer it to lower and middle levels employees. The pay scale of higher-level employees and top management already accounts for their high standard of living. Employees working with an organisation registered under the Companies Act and living in specific large cities qualify to receive a CCA from their employer.

City Compensatory Allowance: Calculation

Employers determine the rate of City Compensatory Allowance at their discretion. They can decide the pay structure – consolidated salary or basic allowance. CCA calculation involves individuals’ cost of living in a specific city and does not vary according to the employer’s position in the company. This means both a clerk and his reporting manager are subject to equal CCA in the same city.

City Compensatory Allowance: Maximum and minimum limit to offer 

The amount of City Compensatory Allowance provided is entirely at the preference of a company. Moreover, no company is legally obliged to offer this allowance to their employees. Employers can provide a combined salary without providing a salary break-up. Lastly, by not paying CCA, companies are not breaching any labour laws. 

Is the City Compensatory Allowance taxable?

CCA amount is entirely taxable without any exemptions under the income tax law. Moreover, there is no separate slab for City Compensatory Allowance in income tax. The CCA amount is included in the employee’s base salary with other allowances. Then the tax is deducted from the gross income according to the tax slab it falls under.

Distinction between CCA, HRA and DA

City Compensatory Allowance (CCA) House Rent Allowance (HRA) Dearness Allowance (DA)
CCA is offered to recoup the high living cost in a metropolitan city. HRA is provided to compensate for accommodation costs in a rental society. DA is provided to compensate for the increased inflation rate.
There is no slab attached to the CCA amount, but there is a fixed amount in private companies. 10% – 20% CTC in Central Government Departments. A certain percentage of an employee’s basic pay. Employers compute it as a percentage of an employee’s basic salary.
CCA is entirely taxable as it is added to an employee’s base salary, and then they charge tax on the gross salary as per the IT slab. Employees can claim an exemption of up to one lakh rupees. They need to provide receipts from their landlord while filing IT returns.  Dearness Allowance is fully taxable. DA is added to an employee’s basic salary, and then they charge tax on the gross salary as per the IT slab.

Source: https://ecis2016.org/.
Copyright belongs to: ecis2016.org

Debora Berti

Università degli Studi di Firenze, IT

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