City Compensatory Allowance

Since the cost of living in metropolitan cities and some of the larger cities is extremely high, several companies provide additional allowance as compensation known as City Compensatory Allowance. This amount is completely taxable under the IT Act.

What is City Compensatory Allowance (CCA)?

City Compensatory Allowance (CCA) is a type of allowance offered by companies to their employees to compensate for the high cost of living in metropolises and large cities. This is typically offered to employees staying in Tier 1 cities and in some cases Tier 2 cities at the discretion of the employer. CCA is fully taxable under Indian income tax laws.

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CCA Component in Salary

The CCA component in salary is left to the discretion of the company who’s paying the salary. The component of CCA in the overall salary can be seen in the salary slip issued to employees. CCA is given irrespective of basic salary component.

City Compensatory Allowance Exemption Limit

There is no exemption for CCA in calculation of income tax. The CCA will be added to the normal income of a person and tax calculated as per his/her respective tax bracket.

City Compensatory Allowance Rates

There are no fixed rates on CCA. Once again, the rates are decided on the discretion of the employer.

City Compensatory Allowance Calculation:

City Compensatory Allowance calculations is done by the employer on their discretion. However, the CCA for the employees of a company in the same city tend to be same for everyone irrespective of their job title or position in the company. An entry-level employee may receive the same CCA compensation as the general manager of the same company in the same city.

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

The CCA does not come under governing rules and regulations except for the fact that income tax are applicable on them. However HRA and DA have to be calculated as a fixed percentage of salary of an employee.

House Rent Allowance (HRA)

Given to employees as a fixed percentage of their basic salaries. It is non-taxable up to Rs.1 lakh if rent is being paid by the employee and rent receipts are duly submitted to the employer for filing tax returns.

Dearness Allowance (DA)

Again calculated as a fixed percentage of basic salary. This is given to shield employees against inflationary pressures.

City Compensatory Allowance (CCA)

Fully taxable component of salary generally given to employees working in big cities to compensate for the higher standard of living. This is a fixed amount instead of a fixed percentage of basic salary.

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