written by Khatabook | July 20, 2021


Table of content

Table of content

City Compensatory Allowance in India - Rates & Limits

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.

What is CCA in Salary?

The full form of CCA in salary is City Compensatory AllowancePrivate 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. 

  • In many ways, HRA or Housing Rental Allowance is also a similar component in the salary offered to employees based on their location. Thus, those in the busy and more populated cities get a higher allowance than those working in smaller towns or less populated areas.
  • City Compensatory Allowance in your salary is at the employer’s discretion and calculated based on the employee grade and pay scale. The CCA in salary slip is not based on the basic salary. Therefore, employees in larger cities like Mumbai receive higher CCA than those working in, let’s say, Mysore city. 
  • The CCA is an allowance and hence fully taxable when it exceeds the amount of Rs 900. Also, there are no limits set for the minimum or maximum CCA offered for taxation purposes.

Who Is Eligible To Receive CCA?

  • CCA in salary is provided to employees in private and public sector enterprises. It is usually offered to lower and middle-level employees helping them offset higher living expenses in Tier-I and Tier-II cities. 
  • Generally, the top management employees do not receive CCA. This practice is because their salaries already account for their working in the more populated cities and having a higher standard of living. 
  • Further, the CCA is not a preset or limited component in any way by maximum or minimum amounts. Therefore, it is fully taxable in the employee’s hands. 
  • The Companies Act specifies the employee classes in registered companies living and working in specific large cities as eligible to receive CCA paid by the employer and their basic salaries.

How Is CCA Computed?

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.

  • The main criteria for calculating the CCA is the CLI- cost of living index in the particular workplace. Employers use it when deciding their CCA components and employment policies. A private organisation will have employees across various categories and with varied pay scales. Hence, CCA or City Compensatory Allowance is decided as a fixed component of your salary and not based on a basic salary percentage, unlike other allowances. 
  • Employees of Public Sector Undertakings, Central Government Departments etc., have a CCA component that is generally 10 to 20% of the CTC or Cost to Company. The CCA being a fixed component indicates that employees in a particular city will have the same CCA irrespective of their employee positions, pay scales and basic salary. 
  • For example, generally speaking, the City Compensatory Allowance or CCA in Salary for a Clerk working in Bangalore will be the same as that of the organisation’s Manager working in the organisation at Bangalore.

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:

  • Actual HRA received: Rs 15,000 x 12= Rs 1.80 Lakh
  • 50% of the salary: Rs 30,000 x 12 x 50%= Rs 1.80 Lakh
  • Excess rent paid over 10% of the annual salary: [(Rs 12,000 x 12 - (10% of Rs 30,000 x 12)]= Rs 1.08 Lakh
  • Least of the amount exempted: Rs 1.08 Lakh

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.

Also Read: Special Allowances in India- Taxation and Calculation 

Limits of CCA in Salary

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.

IT treatment of City Compensatory Allowance and tax implications

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.

Similarities and Differences between HRA, DA and CCA in Salary

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

  • An employer provides HRA or House Rent Allowance to the employees who live in rented accommodation. 
  • This allowance is usually computed as a fixed 40 to 50% of the basic pay. 
  • In terms of tax exemption, the employees can claim HRA deduction against valid rent receipts from the rented accommodation’s landlord when filing tax returns.
  • The employer provides CCA in salary to an employee to offset the higher cost of living in a populous large city or metropolitan city. The CCA allowance is location-based and is not a percentage of the basic pay. It is entirely at the employer’s discretion to offer CCA or not. 
  • Generally, it is a fixed amount payable to all employees in a city irrespective of their designation, pay scale or basic salary. CCA is an allowance that is fully taxable in the employee’s hands. Therefore, it is treated as income from salary.
  • Note that the CCA has no minimum and maximum limits and no rules or regulations to compel the employer to pay CCA to the employees. 
  • When an employee is transferred from a rural area to a populous city or metropolitan area, they can receive the same amount as CCA as the company offers to all its employees working in that particular city. However, when the reverse occurs and an employee is trans-located to a rural area, the employer may discontinue CCA payments as the CLI or cost of living index is reduced. 
  • Employers provide DA or Dearness Allowance to employees to offset the rising prices and inflation. 
  • This allowance is also computed as a fixed percentage of the basic salary. 
  • In terms of income tax exemption, note that the DA is fully taxable in the employee’s hands. 
  • Therefore, it is treated as taxable income from salary for calculating the employee’s tax liability when filing the ITR or Income Tax Returns.

Also Read: Conveyance Allowance- Definition, Limit, Exemption and Calculation 


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. 


Q: 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

Q: 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.

Q: 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.

Q: 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.

Q: 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. 

Q: 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. 

Q: 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. 

Q: 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.

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