City Compensatory Allowance (CCA) is an allowance paid to employees working in metropolitan or Tier-1 cities in addition to their basic salary. It is provided by companies, both public and private, to compensate for the higher cost of living in these cities. In some cases, CCA is also offered for employees working in Tier-2 cities. The component of CCA in the overall salary can be seen in the salary slip issued to employees. CCA is given irrespective of the basic salary component and is fully taxable from an employees annual basic salary, as per the applicable tax bracket and CCA rate determined by the employer. Under the Income Tax Laws, CCA is fully taxable, without any exemptions. For income tax computation, CCA will be added to the income of the employee and tax would be calculated as per the applicable taxation rate. The employer is free to either offer a consolidated salary to the employees without any bifurcations or offer salary with the clearly defined break-up. There are no applicable maximum or minimum limits of CCA that can be offered to an employee.