House Rent Allowance ( HRA ) is the second additional payment . It is divided into categories A-1 , A , B-1 , B-2 and C. This plan was first based on the recommendations of the Fifth Pay Commission of India ( 1997 ) . The list classifies cities in India based on two parameters -- Compensatory City Allowance ( CCA ) , further divided into categories A-1 , A , B-1 and B-2 , and House Rent Allowance ( HRA ) , further divided into categories A-1 , A , B-1 , B-2 and C. This classification was initially based on the recommendations of the Fifth Pay Commission of India ( 1997 ) .