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City Compensatory Allowance: Eligibility, Calculation & Tax Implications

What Is City Compensatory Allowance?

Who Is Eligible to Claim City Compensatory Allowance?

How Is City Compensatory Allowance Calculated?

What Is the Maximum and Minimum Limit to Offer CCA?

Is City Compensatory Allowance Taxable?

Differences Between CCA, House Rent Allowance and Dearness Allowance

City Compensatory Allowance

House Rent Allowance

Dearness Allowance

Employers offer CAA to their employees to recoup the high living cost in a metropolitan or Tier-I city.

Employee provides HRA to compensate for the accommodation costs in a rented residency.

Employees get DA from their employers as compensation for the increasing inflation rate.

Usually, there is no limit to the amount of CCA. This is a fixed amount in private organisations. 10-20% CTC in Central Government Departments or Public Sector Undertakings.

Employers calculate it as a fixed percentage of an employee’s basic pay.

Employers compute it as a percentage of an employee’s basic salary.

CCA is entirely taxable. Employers add it to the basic salary, and they charge tax on the gross salary as per the IT slab.

Employees can claim an exemption up to ₹ 1 Lakh on HRA. They can do so by providing receipts from their landlord while filing IT returns.

DA allowance is fully taxable. Employers add it to the basic salary and deduct tax according to the IT slab.

A company keeps the CAA amount the same if an employee moves to a metropolitan city from a remote city. But the employer can reduce the CAA if an employee shifts from a rural town to a metropolis. Meanwhile, the City Compensatory Allowance is a privilege as long as an employer decides to provide or continue to provide. By no means it is an arbitrary choice or demand of any employee.

Frequently Asked Questions