What is City Compensatory Allowance? #
Employees’ salary is often not enough to meet the rising prices, especially the cost of living in metro cities. City Compensatory Allowance is one of the salary components employers offer to their employees to meet the increasing cost of living in the metro and large cities. This is offered to employees staying in Tier 1 cities and in some cases Tier 2 cities at the sole discretion of the employer and it is fully taxable.
City compensatory allowance is provided to employees who are working or getting transferred to Tier 1 cities. From the name, we can easily understand that this allowance is given as compensation to employees for working in bigger cities. Usually, in bigger cities, the cost of housing, education, food, and other amenities is much higher compared with smaller cities. The salary package offered in smaller cities will be much lesser compared to a larger one. Skilled laborers often move to bigger cities in search of jobs to avail a higher salary and the salary package will be 2 to 3 times higher than the smaller cities which is compensation for the higher cost of living in cities.
