Pagar Khata -Staff Payroll & Attendance Management
In today’s competitive world, urban areas and cities grow faster and hence also the payscale. Besides, a great level of job migration in cities occurs due to higher pay structures. Therefore, employers provide CCA in salary, also called the City Compensatory Allowance, to help with the higher costs of living in a city.
To retain employees, companies offer a city-based compensatory allowance or the CCA in salary to help offset the higher living standards in metropolitan cities. Thus CCA is location-based, and cities are classified as Tier I, II, III cities based on their population. For example, Hyderabad, Mumbai, Delhi, Bangalore, etc., are Tier-I metropolitan cities. In contrast, smaller cities like Mysore, Belgaum are Tier-II cities and smaller towns are classified as Tier III according to the Sixth Pay Commission.
The full form of CCA in salary is City Compensatory Allowance. Private and public companies provide CCA to their employees to help offset the higher expenses and cost of living in Tier-I or Tier-II cities than in smaller towns.
Employers can choose to pay a consolidated salary or a basic salary with several components added to offset various expenses like the CCA- City Compensatory Allowance, HRA- Housing Rent Allowance, DA- Dearness Allowance, Medical Allowance etc. By doing so, employers will not be in breach of any Labour Laws. Thus the salary structure and amount of CCA is at their discretion.
Let’s take an example of HRA to understand CCA computation better. Suppose you pay a monthly rent of Rs 12,000 and your basic salary is Rs 30,000 per month. Your monthly Hra is Rs 15,000. The tax exempted HRA will be as follows:
According to this calculation, the lowest amount of Rs 1.08 will be exempted from tax whereas the rest is taxable. Therefore, you will be taxed Rs 72,000 (Rs 1.80 - Rs 1.08) as per your income slab.
The best place to find the CCA in salary or the CCA available to you is to read your salary slip carefully. It is generally mentioned in the payslip. There are no fixed minimum and maximum limits for City Compensatory Allowance. It is at the employer’s discretion and meant to be a small measure to offset higher expenses and standards of living in populous cities. As specified above, no regulations and rules compel employers to provide CCA or a particular fixed amount as CCA. However, most often, they do pay it to retain their employees. If you are receiving consolidated pay, then probably the CCA is already accounted for in it. Those who receive a basic salary plus allowances can find their CCA component of salary in their pay-slip under the CCA or City Compensatory Allowance head.
The rules and regulations of the Income Tax Act 1961 treat CCA salary or the City Compensatory Allowance as a source of income under the salary head and is fully taxable. Thus CCA has no IT exemptions.
In terms of income tax computation, CCA means in salary the additional allowance paid as CCA and is added to the Basic Salary to form the Gross Salary. Thus, the Take-home salary will be the Gross Salary minus the deductions for PF, professional tax etc. Thus when filing the ITR, note that there is no exemption for CCA. If you receive the City Compensatory Allowance, it is fully taxable at the applicable tax rates.
The salary structure has many components. Most people find it hard to differentiate between the CCA or City Compensatory Allowance, HRA or House Rent Allowance and DA or Dearness Allowance. These three allowances provided by employers to employees have several similarities in their features. However, the allowances are also very distinct from each other, as explained below.
HRA or House Rent Allowance
CCA or City Compensatory Allowance
DA or Dearness Allowance
We have learned the meaning of CCA or City Compensatory Allowance, its treatment under the Income Tax Rules and its limits and rates. All allowances in salary are generally fully taxable, and CCA is not an exception. However, what sets it apart is that it is a discretionary allowance provided by the employer. It has no set maximum or minimum values or rules and regulations that can compel employers to pay CCA. Tracking your salary components helps calculate your tax liability when filing ITRs and improves your tax planning.
1. Will I be paid the same CCA if I am transferred to Mysore from Bangalore?
No. The CCA is linked to the cost of living index, which is higher in Bangalore, a Tier I city, than in Mysore, a Tier II city. The CCA payable in Bangalore should generally be higher than at Mysore. However, since this is entirely at the employer’s discretion and cannot be demanded by the employee, you should expect a suitable reduction in the CCA.
2. Why is there no CCA for those working on a consolidated salary?
Generally, consolidated salaries consider that working in cities is more expensive and compensates for it in the consolidated sum offered.
3. Do top-level management directors get the same CCA as a clerk?
No. Generally, the higher-level employees are not paid CCA. The salary offered for them already accounts for these posts being in populated cities with a higher standard of living. However, middle/lower level employees all receive the same CCA irrespective of their employment positions, pay scales or basic pay in a particular city.
4. Do I need to use a calculator to track and compute my CCA component of the salary?
You can easily find the CCA in salary slip. This allowance remains fixed and at the employer’s discretion for as long as you work in that particular city.
5. Does the CCA have any IT exemption?
No. CCA is treated for IT calculation purposes as income from salary and is fully taxable at the employee’s hands.
6. My employer does not pay CCA. Can I compel him to pay CCA?
CCA has no minimum or maximum limits and is entirely at the employer’s discretion to pay. Most companies pay CCA to retain their employees. However, there are no rules or regulations that compel the employer to pay CCA.
7. Are HRA and CCA the same?
No. HRA is offered to offset the living expenses or house rent expenses. CCA is the City Compensatory Allowance paid to employees because living costs in a city are higher than in rural areas. Also, HRA is computed as a fixed percentage of your basic pay. At the same time, CCA is a fixed amount not linked to the basic salary. It is the same across all employees working in a particular city.
8. Are Dearness allowance DA and CCA the same?
No. DA is offered to offset the rising prices and inflation rates causing stress to the employee’s expenses. CCA is the City Compensatory Allowance paid to employees because living in a city is more expensive than rural areas. Also, DA is computed as a fixed percentage of your basic pay (40 to 50%). At the same time, CCA is a fixed amount not linked to the basic salary. It is the same across all employees working in a particular city
Pagar Khata -Staff Payroll & Attendance Management