Understanding the Difference Between Conveyance and City Compensation Allowance: Can You Help?

Dear all, please let me know about the difference between conveyance and city compensation allowance.

Understanding Conveyance and City Compensation

Conveyance means your traveling cost.

City compensation, in simple words, refers to HRA, which stands for House Rent Allowance.

Difference Between Conveyance Allowance and City Compensatory Allowance

Conveyance allowance, as the name suggests, is linked to daily traveling, and thus its scope is confined to one item of expense, namely traveling. The scope of City Compensatory Allowance is wider, as it includes many items of expenses like HRA or telephone expenses, etc., and may include traveling expenses as well, wherever such expenses are not separately provided by a company.

Regards,
B. Saikumar

Hello friends, I will differentiate between both components from my other two fellow Cite HR members.

City Compensatory Allowance

This allowance is paid to employees who are posted in big cities. The purpose is to compensate for the high cost of living in cities like Delhi, Mumbai, etc. However, it is fully taxable. This allowance is an independent allowance and does not include other expenses, as explained by our co-member.

Conveyance

Expenses incurred for local traveling are termed as conveyance. All out-of-station travel is considered as travel expenses.

Regards,
Manjay

Malay Gauri Consultants Pvt. Ltd. | www.malaygauri.com

Understanding CCA and Conveyance Allowances

CCA is a compensation given for the cost of living in a particular city, while conveyance allowances are provided for traveling expenses to an employee or executive. It again depends on the company policies how much amount will be given.

Regards,
NIKITA
Student, AKGIM
GHAZIABAD

Understanding City Compensatory Allowance

It goes without saying that the City Compensatory Allowance, as the very name itself suggests, is payable in cities but not in rural or semi-urban areas. It needs no separate emphasis. Cost of living, in industry parlance, is linked to the capacity of a standard family to buy core products of consumption like food articles. The Dearness Allowance, which is paid to an employee in both the public and private sectors, is expected to neutralize the effect of the cost of living. Apart from this, an employee living in the city has to incur many other expenses on house rent, traveling, education, and fuel expenses, which may be more in a city due to long distances or memberships in local reading clubs, etc., which are peculiar to city life to maintain a standard of living.

Therefore, apart from D.A., establishments pay allowances like HRA, T.A., or medical allowance separately or in the form of a lump sum allowance called City Compensatory Allowance. Such allowances are paid to afford a fair wage to enable the employee and his family in cities to maintain a reasonable standard of living. Thus, while Dearness Allowance is linked to the cost of living, City Compensatory Allowance is linked to the standard of living and is not expected to perform the same function as Dearness Allowance. However, where employees are not paid dearness allowance, probably it may cover such costs also.

Regards,
B. Saikumar
HR & Labour Law Consultant
Chipinbiz Consultancy Pvt. Ltd
Mumbai
Mob: [Phone Number Removed For Privacy Reasons]

City Compensatory Allowance (CCA)

CCA is applicable to cities based on their status. For instance, Class A includes larger cities like Delhi, Mumbai, Kolkata, Chennai, Bangalore, and Hyderabad, while Class B comprises smaller cities such as Pune, Jaipur, Rajkot, and Coimbatore. This classification is based on population and cost of living. The CCA amount is determined by the policies of each organization and has no bearing on other allowances like DA or HRA. Notably, CCA has been abolished in the Central Government (India) following the recommendations of the 6th Central Pay Commission.

Conveyance Allowance

Conveyance Allowance is a fixed amount given to employees for commuting to and from their place of work. Currently, Rs 800 per month is not taxable. Any travel from the workplace to a third location is covered by reimbursement or vehicle allowance.

Regards,
Rajusiachen

Can anyone please guide on how a company should calculate CCA implementation and what factors need to be considered?

Regards,
Shilpa

Dear All,

As many have pointed out, City Compensatory Allowance (CCA) is fully taxable within the income tax slabs for TDS purposes. On the other hand, Conveyance Allowance is exempt up to a certain limit (maximum of Rs. 9600 per year) as prescribed under the Income Tax Act.

Regards,
Kumar S.

Understanding Conveyance Allowance

Conveyance allowance (for all employees) was a concept introduced for government servants in the 4th pay commission (there was a provision to pay this allowance to disabled employees earlier). This allowance is paid to an employee to cover daily travel costs to the workplace in the absence of any other assistance by way of a car, subsidized transport, etc. The rate of the allowance is linked to the city type and the status of the employee (based on the scale of pay in government). The quantum is the "hypothetical" average amount that a person of the status would incur to reach the place of duty during a month. Since the allowance is based on the assumption that it has to be spent, it is exempt from income tax. In the private sector, companies may pay a different rate higher than the government rate, but for tax purposes, they can exempt the same quantum as is allowed for government servants. If an employee is not expected to go to the office due to being on tour, leave, etc., this allowance is not to be paid (or taxed if paid in the private sector). If an employee is provided with a staff car, the allowance is not to be paid.

Understanding City Compensatory Allowance (CCA)

CCA, on the other hand, is an allowance paid to compensate for the extra cost of living in a bigger city (classified based on population) as an additional allowance only based on the place where the office of duty is located. The CCA is of a compensatory nature and is fully taxable. The rate depends on the city and status of the employee. This can be assumed to be over and above the DA and HRA, especially for the city in which the office is located.

While private companies can show a portion of CTC as a transport allowance to their employees to give them the benefit of tax on par with government employees, CCA is generally not an allowance being paid in the private sector. Needless to say, employees for whom the transport allowance is paid as part of their CTC should not be provided with a staff car; otherwise, the quantum will have to be taxed.

Regards,
K. Raajaram

Could you please confirm and tell me whether CCA is abolished? 

Regards,
Ekta

Abolishment of CCA in the 6th Central Pay Commission

The City Compensatory Allowance (CCA) was abolished in the recent 6th Central Pay Commission implemented by the Central Government with effect from January 1, 2006.

Regards,
Rajusiachen