City Compensatory Allowance as Part of the Salary Component

What is CCA?

CCA or city compensatory allowance is now an integral component of a CTC structure (both for companies and business establishments in the public and private sectors). CCA is payable to all employees and workers who work and reside in certain urban zones where the cost of living is higher than the national average. Since the cost of livelihood differs from city to city or from one urban or rural region to another, the CCA that you’d be actually eligible for will also vary correspondingly. The CCA component of a salary structure is generally worked out on the basis of the grade or scale of pay and not on the basis of basic salary.
Specific classes of employees of any corporate or business organization covered under the Companies Act working and living in a particular urban agglomeration or a metropolitan area qualify to receive CCA. Those working in Class-I or Tier-I cities like New Delhi, Mumbai, Kolkata, Chennai, Bangalore, Ahmedabad, Hyderabad, Poona, Lucknow, Jaipur, Trivandrum, and Goa receive CCA that can adequately compensate for the cost of living in these cities.

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The CCA for an employee in Mumbai will be higher than his counterpart in say Kolkata or Chennai. By the same token, CCAs for those posted in rural areas will be a few notches lower than those stationed in urban regions. There is no prescribed or stipulated ceiling limit or cap for CCA. The cap for CCA varies from organization to organization and is actually determined by the top brass of the company. The ‘cost of living index’ in a particular city or town is the primary criterion that is taken into account when calculating CCA. The CCA that you get is liable to be taxed if the amount exceeds 900 INR.



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How is CCA worked out?

The total emoluments or CTC that you receive has many components. All the composites or components of the gross salary can be grouped under 5 broad heads or categories namely:-

  • Basic Salary
  • Allowances
  • Fees, Bonus and Commissions
  • Perks or Perquisites
  • Superannuation or Retirement Benefits

The various allowances, perks and incentives that are covered under the above broad classifications (apart from your basic salary) are DA, CCA, HRA, deputation allowance, medical allowance, officiating allowance, leave travel allowance and concession, overtime allowance, and other relevant allowances.

You should be in the know that there is no prescribed statute for calculating basic salary and the components that make up the gross salary. In other words, there is no obligation on the part of the employer to adhere to a mandatory salary structure where the components have been split up in a specified pattern. Employers by paying consolidated salaries would not be breaching any labour laws. Companies paying CCA work out the same based on:-

  • their respective employment policies
  • Categorising the towns and cities according to the cost of living index

Central government organizations and public sector undertakings earmark CCA based on a certain percentage of the CTC which could vary from 10% to 20%. Private sector firms and establishments also follow the same procedure.

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However, it should be borne in mind that executive and managerial level employees generally do not qualify to receive CCA as their grade pay is high enough to meet the cost of living in metropolitan cities. CCAs are usually paid to employees belonging to the lower rungs of an organization’s hierarchy whose basic salaries are not enough to cover the high living costs in Tier-I and Tier-II cities. Normally, a manager or a peon in a company is entitled to receive the same CCA. Therefore, CCA is paid as prefixed amount and not worked out as a percentage of basic pay especially in organizations where different groupings of employees have different payscales.