written by Khatabook | November 23, 2021

Know Everything About City Compensatory Allowance (CCA)

The full form of CCA in salary is City Compensatory Allowance. It is one of the major allowances commonly offered by Indian companies, government organisations, and other business entities to CCA employees. This article will discuss the definition of city compensatory allowance, its eligibility and how it is calculated. It is essential to understand what portion of your salary comprises city compensatory allowance or limits to it, such as tax implications under the Income Tax Laws of India.

What is CCA in salary?

Businesses must give the best for their employees to retain them in the current competitive environment. The most obvious and compelling motivation for an employee to seek a career change is to earn more money. In a metropolitan city, people struggle to create and maintain a comfortable living. However, this is not always straightforward, and it typically necessitates a significant increase in one's income. As a result, a company must ensure that its employees are adequately compensated. This is why, in addition to their base income, employees are granted numerous allowances. Companies generally offer it to employees living in Tier 1 cities such as Delhi, Mumbai, Bangalore, Chennai, etc.

  • The CCA in salary is an allowance given to employees by firms, whether public or private, as compensation for the high costs of living in a Tier-1 or metropolitan city. 
  • This benefit is sometimes extended to employees in Tier-2 cities as well. 
  • Instead of an employee's basic wage, CCA is frequently calculated based on their grade and pay range. As a result, CCA varies from one city to the next. An employee working in Mumbai, for example, would receive a larger CCA than someone working in Madhya Pradesh.

Eligibility for Receiving CCA in salary

The City Compensatory Allowance (CCA) is available to all employees in the private and public sectors. Although there is no set eligibility condition for CCA, it is typically granted to lower and mid-level employees to help them afford their living expenditures in rapidly growing metropolitan areas. The higher-level or top management personnel are not provided CCA since they have a greater pay scale than regular employees.

However, certain kinds of employees are eligible for CCA because their company is registered under the Companies Act, and they live in substantially larger cities. It should be noted that there is no limit to the amount of CCA an employee can receive, and it is entirely up to the employer's discretion.

Calculation of CCA in salary slip

  • The employers of an organisation are ultimately responsible for calculating City Compensatory Allowance or CCA in salary slip. 
  • They are free to choose the compensation structure they want to utilise as long as it does not violate labour rules. 
  • The cost of living index of a given city and its employment rules are used to calculate the CCA in salary slip
  • In a private organisation whose pay scales vary according to the various categories of employees, CCA is paid to an employee as a fixed amount rather than as a percentage of their base pay.
  • This allowance is calculated as a percentage of a person's cost to the Company (CTC). It can range from 10% to 20% for those working for Public Sector Undertakings or Central Government Departments. 
  • In most cases, CCA is the same for all employees who live in the same city. 
  • The employee's job title would not be taken into account. This corresponds to an equivalent amount of City Compensatory Allowance for every employee in the same city, whether they are a manager or a clerk.

Limits of CCA in salary

As previously stated, the computation of City Compensation Allowance or CCA in salary is not governed by any specific norms or regulations. It is totally up to the company to pay a set amount as a stipend for their workers. It should be emphasised that no employer is required by law to provide this benefit to employees who work in a metropolitan area. The employer has the option of paying employees a consolidated salary with no bifurcations or compensation with a clearly defined break-up. There are currently no maximum or minimum CCA limits that apply to an employee.

Also Read: Salary Calculator 2020-21 - Take Home Salary Calculator India

Tax Implications of CCA in salary slip

The City Compensatory Allowance is fully taxed under the Income Tax Laws, with no exemptions. This allowance would be applied to the employee's earnings, and the tax would be calculated using the applicable tax rate for income tax purposes.

Difference between CCA, HRA and DA

A corporation provides three important allowances to its employees: City Compensatory Allowance (CCA), House Rent Allowance (HRA), and Dearness Allowance (DA). Though they share some characteristics, these three are radically different in many ways. The following are the key distinctions between these three allowances:-


House Rent Allowance (HRA)

Dearness Allowance (DA)

City Compensatory Allowance (CCA)


To live in rented accommodation, an employee receives House Rent Allowance (HRA) 

An employee receives a Dearness Allowance (DA) as compensation for rising inflation.

Employees are given a City Compensatory Allowance (CCA) to compensate for the high costs of living in a metropolitan or Tier-1 city.


It is calculated as a percentage of the basic wage of an employee

It is calculated as a percentage of the basic salary of an employee

It is generally kept as a fixed amount for all employees living in the same city


An employee can claim a deduction of HRA up to Rs One Lakh by providing rent receipts to his employer. If they want to claim beyond rupees one lakh, they also have to produce the Permanent Account Number (PAN) of the landlord.

Dearness Allowance is fully taxable. Hence it is added to the salary of the employee while calculating his taxable income.

City Compensatory Allowance is fully taxable; hence it is added to the employee's salary while calculating his taxable income. However, there are no limits on which the employee may receive this allowance.

When an employee is transferred from a rural to an urban region, they will receive the same CCA in salary as the rest of the workforce. When an employee is transferred from a metropolitan area to a rural location, the employer might stop paying CCA because living in a rural area is much cheaper than in a metropolitan area.

In a nutshell, Location Compensatory Allowance is a benefit provided by an employer to compensate employees for the greater cost of living in a specific city; however, it cannot be sought arbitrarily by an employee.

How does CCA in salary work?

There are some major areas in which the components of an employee's gross salary can be categorised. These are the following:-

  • Basic Salary
  • Allowances- Like House Rent Allowance, Dearness Allowance, City Compensatory Allowance, vehicle Allowance, etc.
  • Perquisites- Like reimbursements of utility bills, incentives based on performance, etc.
  • Bonus, Commission and fees
  • Superannuation / Retirement Benefits

Some examples of perquisites and allowances that employers provide to employees beyond their basic salary:

  • House Rent Allowance
  • Deputation Allowance
  • Dearness Allowance
  • City Compensatory Allowance
  • Deputation Allowance
  • Medical Allowance
  • Leave Travel Allowance
  • Officiating Allowance

As previously stated, no strict standards govern the computation of an employee's basic compensation and the components of gross salary. The CCA in salary is one of these allowances with no laws governing the maximum or minimum amount that can be offered to employees, leaving it up to the employer to decide how much to pay.

How is the amount of CCA in salary slip decided?

The following aspects are used to determine the amount of CCA in salary slip:

  • Policies of employment adopted by any business entity/organisation
  • Cost of living index of any city

In government organisations, public and private sector enterprises, the city compensatory allowance offered to employees is typically between 10% to 20%.

Higher management personnel are frequently ineligible for City Compensatory Allowance since their pay scale is too wide to cover the high cost of living in metropolitan and major cities, mainly Tier I cities. Employees at the bottom of an organisation's hierarchy are frequently eligible for CCA since their basic salary does not cover the cost of living in Tier-I and Tier-II cities. 

In most circumstances, City Compensatory Allowance is paid to employees in a fixed amount rather than a predetermined proportion of basic wage. If this were the case, an employee with a high base pay would be eligible for a greater City Compensatory Allowance, resulting in a skewed choice.

Furthermore, the City Compensatory Allowance component of the salary structure is decided by the employee's pay scale and grade and their basic income. As a result, the CCA in salary varies in each city. Employees who work in rural locations will also earn a smaller City Compensatory Allowance than those in cities. The City Compensatory Allowance does not have a maximum or minimum amount. CCA in salary is fully taxable under Section 10(14) of the Income Tax Act of 1961.

Famous Case Laws regarding CCA in salary

  • S. Krishnamurthy Vs Presiding Officer – Supreme Court of India
  • Union of India Vs Justice S.S Sandhawalia (Retired) and others – Supreme Court of India
  • Haryana State Adhyapak Sangh and others Vs State of Haryana and others – Supreme Court of India
  • All India Insurance Employees Association and Others Vs Union Of India – Calcutta High Court
  • Syndicate Bank Officers Association and Another Vs Union of India and Others – Calcutta High Court
  • Sri Mahendra Pratap Singh and 14 others Petitioners vs State of UP and 4 others  - Allahabad High Court
  • N.Raju vs Revenue Divisional Officer, Madurai District Kallar Reclamation Department others – Madras High Court
  • FX Fernando Vs Secretary, Government of Tamil Nadu and another – Madras High Court
  • Commissioner of Income Tax West Bengal Vs R.R. Bajoria – Calcutta High Court
  • Insurance Corporation Employees Union of Goa vs Life Insurance Corporation of India – Bombay High court
  • Sahilender Kumar vs Union Bank of India – Allahabad High Court.

Also Read: All About Special Allowance - its Taxation & Calculation in India


The cost of living is increasing under the present inflation rate which is leading to higher pricing of products and services across all industries. Maintaining a respectable living standard while managing your money is difficult, especially in tier-1 and metropolitan locations. City Compensatory Allowance or CCA in salary is one of your perks. It helps to look after your accommodation costs and increase the amount of spending you will incur when you shift to Tier 1 cities. Hence, various organisations, whether government or private companies, partnership firms, etc., offer CCA in salary to their employees to retain them.

We hope that this article has cleared your doubts regarding CCA in salary. For more information, download the Khatabook app.


Q: Is CCA reflected separately in Salary Slip?


Yes, CCA is reflected separately in Salary Slip.

Q: Can CCA in salary be given to employees working in Tier 2 cities also?


Yes, CCA in salary can be given to employees working in Tier 2 cities based on the organisation's policies.

Q: Is City Compensatory Allowance different from Dearness Allowance and House Rent Allowance?


Yes, City Compensatory Allowance is different from Dearness Allowance and House Rent Allowance

Q: Is CCA in salary taxable in India?


Yes, CCA in salary is taxable in India under the Income Tax Laws. No Deduction is available against it.

Q: Is there any limit of payment of city compensatory allowance?


No, there is no limit on payment of city compensatory allowance.

Q: What is CCA in salary?


The CCA in salary is an allowance given to employees by firms, whether public or private, as compensation for the high costs of living in a Tier-1 or metropolitan city

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