8th pay commission: Here's how much HRA could change for employee levels 6-10 based on fitment factor suggestions

The 8th pay commission is expected to make decisions that significantly impact the salaries of central government employees and pensioners, including railways and defence personnel. Constituted every 10 years, its recommendations are likely by mid-2027.

The announcement is set to affect as many as one crore beneficiaries — about 50 lakh central government employees, and close to 65 lakh retired central government pensioners. This also includes defence and railway personnel, as well as retirees.

Today, we take a look at the likely revision in house rent allowance (HRA) across X, Y and Z category cities in India for employee levels ranging from 6 to 10. Bank Bazaar has provided the calculations based on fitment factor suggestions proposed by various employee and pensioner unions and representative groups.

What is House Rent Allowance?

House Rent Allowance is a component of your salary structure that aims to help employees with rent-related expenses. This is especially provided in big cities, where the rental expense is usually high.

It has a tax benefit under Section 10(13A) of the old tax regime, under which a salaried individual can claim HRA as a partial tax exemption for rent paid during the financial year. The same is not available under the new tax regime.

Notably, one can claim both HRA and home loan exemption together under certain conditions, but cannot claim HRA without proof of rent payments.

Projected HRA calculations for employee levels 6 to 10

In India, the X category comprises urban areas with a population exceeding 50 lakh, while the Y category includes hubs with a population between 5 lakh and 50 lakh. The Z category includes towns and rural areas with a population below 5 lakh.

What are the current HRA rules?

At present, taxpayers in big metros, including Chennai, Delhi, Kolkata and Mumbai, are eligible for a 50% HRA exemption, while taxpayers in other urban centres can claim a 40% exemption.

Earlier this year, the Centre expanded its list of metro cities for HRA purposes. In addition to Delhi, Mumbai, Kolkata, and Chennai, Bengaluru, Hyderabad, Pune, and Ahmedabad are now treated as metro cities. This means that house renters in these cities can claim 50% HRA exemption.

You will need to maintain the following proof to claim HRA:

• Rent receipts and a valid rent agreement.
• Landlord’s PAN if annual rent exceeds ₹1 lakh per annum.
• Proof of rent payments such as bank transfers or UPI records.
• Verify that HRA details are correctly reflected in Form 16.

What are the demands for HRA revision?

Earlier this month, the All India NPS Employees Federation (AINPSEF) demanded that HRA be revised upwards under the 8th CPC. It recommended 36% HRA for X category cities, 24% for Y category cities and 12% for Z category cities. Further, another suggestion is that HRA be increased every time Dearness Allowance is hiked.

The group further suggested that the commission change its calculation of fixed salary for family units, proposing that the family unit be increased from 3 to 4.4. They ask that the unit also include dependent parents — effectively increasing the fitment factor from 2.05 to 2.10. The higher fitment factor will increase basic pay for central government employees across all levels.

Further, a teachers' body, the Pragatisheel Shikshak Nyaya Manch (PSNM), a body representing central government teachers (UTs, Kendriya Vidhyalaya and Navodaya Vidyalaya) and affiliated with AINPSEF, in April also demanded that HRA be hiked up to 36% and fitment factor be increased in the range of 2.62 to 3.83 by the 8th CPC.

When is the 8th pay commission decision expected?

Reports suggest that another DA hike announcement could come this year, in July or September, amid inflationary pressures and as employees and pensioners seek relief against steadily rising living expenses.

As per the usual timeline, the CPC is expected to submit its final recommendations around 18 months after its constitution, which means that the earliest we can expect an announcement is February or April 2027.

Further, based on past trends, once the pay commission's recommendations are made, the rollout takes another two to three years to complete. This means that hikes announced in 2027 may only be fully implemented by 2029 or 2030.

Disclaimer: This story is for educational purposes only. The views above are those of individual analysts or companies, and not of Mint. We advise readers to check with certified experts before making any financial decisions.