"Tier 2" is not a term the central government uses. The list usually meant is the Y class for House Rent Allowance: 88 cities and urban agglomerations named in the Department of Expenditure order of 7 July 2017, including Jaipur, Surat and Lucknow. For home buyers, RBI loan-to-value limits are the same in every city, while priority sector housing loan limits depend on a centre's population.
List of Tier 2 Cities in India
The table lists every city classified as "Y" in the annexure to Department of Expenditure Office Memorandum No. 2/5/2017-E.II(B) dated 7 July 2017 on House Rent Allowance (HRA) for central government employees. States and cities appear in the order and spelling used in the annexure; this is not a ranking. Most entries are urban agglomerations as defined in Census 2011, so they cover more than the municipal limits of the named city.
| State / UT | Number of Y cities | Cities classified as Y |
|---|---|---|
| Andhra Pradesh / Telangana | 5 | Vijayawada, Warangal, Greater Visakhapatnam, Guntur, Nellore |
| Assam | 1 | Guwahati |
| Bihar | 1 | Patna |
| Chandigarh | 1 | Chandigarh |
| Chhattisgarh | 2 | Durg-Bhilai Nagar, Raipur |
| Gujarat | 5 | Rajkot, Jamnagar, Bhavnagar, Vadodara, Surat |
| Haryana | 2 | Faridabad*, Gurgaon* |
| Jammu and Kashmir | 2 | Srinagar, Jammu |
| Jharkhand | 4 | Jamshedpur, Dhanbad, Ranchi, Bokaro Steel City |
| Karnataka | 5 | Belgaum, Hubli-Dharwad, Mangalore, Mysore, Gulbarga |
| Kerala | 7 | Kozhikode, Kochi, Thiruvananthapuram, Thrissur, Malappuram, Kannur, Kollam |
| Madhya Pradesh | 5 | Gwalior, Indore, Bhopal, Jabalpur, Ujjain |
| Maharashtra | 11 | Amravati, Nagpur, Aurangabad, Nashik, Bhiwandi, Solapur, Kolhapur, Vasai-Virar City, Malegaon, Nanded-Waghala, Sangli |
| Odisha | 3 | Cuttack, Bhubaneswar, Raurkela |
| Puducherry | 1 | Puducherry |
| Punjab | 3 | Amritsar, Jalandhar, Ludhiana |
| Rajasthan | 5 | Bikaner, Jaipur, Jodhpur, Kota, Ajmer |
| Tamil Nadu | 6 | Salem, Tiruppur, Coimbatore, Tiruchirappalli, Madurai, Erode |
| Uttar Pradesh | 15 | Moradabad, Meerut, Ghaziabad*, Aligarh, Agra, Bareilly, Lucknow, Kanpur, Allahabad, Gorakhpur, Varanasi, Saharanpur, Noida*, Firozabad, Jhansi |
| Uttarakhand | 1 | Dehradun |
| West Bengal | 3 | Asansol, Siliguri, Durgapur |
| Total | 88 | 21 states and union territories |
* Faridabad, Gurgaon, Ghaziabad and Noida are marked in the annexure as Y only for the purpose of extending HRA on the basis of dependency. The same order continues HRA at Delhi (X class) rates for central government employees posted in these four cities.
The order also continues Y class rates for employees posted in Shillong, Goa, Port Blair and Jalandhar Cantonment, and HRA on par with Chandigarh for Panchkula and S.A.S. Nagar (Mohali), although these places are not in the annexure list. Every city or town not named as X or Y is classified as Z.
How Cities Are Classified: Tier 1, 2 and 3 vs X, Y and Z
India has two official classifications that are often confused, and neither uses the words "Tier 2" in the way property markets do.
The first is the HRA classification for central government employees. Cities are placed in class X, Y or Z on the basis of Census 2011 population: 50 lakh and above for X, 5 lakh to 50 lakh for Y, and below 5 lakh for Z. The 7 July 2017 order implementing the Seventh Central Pay Commission names 8 X cities and 88 Y cities. In common usage X, Y and Z are called Tier 1, Tier 2 and Tier 3.
The second is the Reserve Bank of India's classification of centres, set out in its branch authorisation rules for banks. It has six tiers based on Census 2011 population, and its Tier 2 means a town of 50,000 to 99,999 people. Under the RBI definition, any centre with a population of 1,00,000 or more is Tier 1, so every Y class city is an RBI Tier 1 centre.
| RBI tier | Population (Census 2011) |
|---|---|
| Tier 1 | 1,00,000 and above |
| Tier 2 | 50,000 to 99,999 |
| Tier 3 | 20,000 to 49,999 |
| Tier 4 | 10,000 to 19,999 |
| Tier 5 | 5,000 to 9,999 |
| Tier 6 | Less than 5,000 |
RBI separately groups centres by population as rural (up to 9,999), semi-urban (10,000 to 99,999), urban (1,00,000 to 9,99,999) and metropolitan (10,00,000 and above).
Tier 1 vs Tier 2 vs Tier 3 Cities
The comparison below uses the HRA classification, because it is the only one that names the cities. HRA started at 24%, 16% and 8% of basic pay from 1 July 2017. The order provided for an increase to 27%, 18% and 9% when Dearness Allowance crossed 25%, and to 30%, 20% and 10% when it crossed 50%. Dearness Allowance reached 50% from 1 January 2024, and the 30%, 20% and 10% rates have applied since then.
| Parameter | Tier 1 (X class) | Tier 2 (Y class) | Tier 3 (Z class) |
|---|---|---|---|
| Population basis (Census 2011) | 50 lakh and above | 5 lakh to 50 lakh | Below 5 lakh |
| Cities named in the 2017 order | 8 | 88 | All others |
| HRA from 1 July 2017 | 24% of basic pay | 16% of basic pay | 8% of basic pay |
| HRA since 1 January 2024 | 30% of basic pay | 20% of basic pay | 10% of basic pay |
| Example cities | Delhi, Greater Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Ahmedabad, Pune | Jaipur, Indore, Lucknow, Surat, Nagpur, Coimbatore, Kochi, Bhubaneswar | Not named in the order |
The eight X cities are the complete Tier 1 list under this classification. Cities such as Amritsar, Asansol and Dehradun, which are sometimes described as Tier 3, are in the Y list and therefore count as Tier 2.
Home Loan Rules That Change With City Tier
Two RBI rules matter most to a home buyer comparing cities. One changes with the size of the city and one does not.
The rule that changes is the priority sector lending limit. Under the RBI Master Directions on Priority Sector Lending, 2025, in force from 1 April 2025, a bank's housing loan to an individual counts as priority sector lending only within the limits below. The limits are set by the population of the centre, not by HRA class.
| Population of centre | Maximum loan | Maximum cost of dwelling unit |
|---|---|---|
| 50 lakh and above | ₹50 lakh | ₹63 lakh |
| 10 lakh and above but below 50 lakh | ₹45 lakh | ₹57 lakh |
| Below 10 lakh | ₹35 lakh | ₹44 lakh |
These limits decide how a bank reports the loan against its priority sector target. They do not cap how much an individual can borrow.
The rule that does not change is the loan-to-value (LTV) ratio, which sets the minimum down payment. RBI's LTV limits for housing loans depend on the loan amount and are the same in every city.
| Loan amount | Maximum LTV | Minimum down payment |
|---|---|---|
| Up to ₹30 lakh | 90% | 10% |
| Above ₹30 lakh and up to ₹75 lakh | 80% | 20% |
| Above ₹75 lakh | 75% | 25% |
Illustration at an assumed rate, not a lender quote: a ₹30 lakh loan at 8.50% a year for 20 years works out to an EMI of about ₹26,035 a month, and total interest of about ₹32.48 lakh over the full term. At the same assumed rate and term, a ₹35 lakh loan works out to about ₹30,374 a month.
What are tier 1, 2, and 3 cities
Tier 1, Tier 2 and Tier 3 are informal labels. In most uses they correspond to the X, Y and Z classes that the central government uses to pay House Rent Allowance to its employees.
Tier 1 means the 8 X class cities, each with a Census 2011 population of 50 lakh or more: Delhi, Greater Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Ahmedabad and Pune. Tier 2 means the 88 Y class cities, with populations from 5 lakh to 50 lakh. Tier 3 means every other city and town, which the order classifies as Z.
The classification applies to central government employees. The city list in the 2017 order is the one set by the Department of Expenditure order of 21 July 2015.
Key Takeaways
- Tier 1 is the 8 X class cities, where central government HRA has been 30% of basic pay since 1 January 2024.
- Tier 2 is the 88 Y class cities listed in the 7 July 2017 order, where HRA is 20% of basic pay.
- Tier 3 is every other city and town, classified as Z, where HRA is 10% of basic pay.
- RBI's own "Tier 2" is a different category: centres with a population of 50,000 to 99,999.
- RBI's LTV limits of 90%, 80% and 75% apply by loan amount and do not vary by city.
- Priority sector housing loan limits are ₹50 lakh, ₹45 lakh and ₹35 lakh depending on the population of the centre, from 1 April 2025.
Frequently Asked Questions (FAQs)
What is the HRA tax benefit classification for Tier 2 cities in 2026?
The Y class sets how much HRA a central government employee is paid: 20% of basic pay. It does not set the tax exemption. The exemption on HRA is available only under the old tax regime and only when the employee pays rent for a home they do not own. For financial year 2025-26, the exemption is the lowest of the HRA received, rent paid minus 10% of salary, and 50% of salary in Delhi, Mumbai, Kolkata and Chennai or 40% of salary elsewhere. Interest on a home loan for a self-occupied house is deductible up to ₹2 lakh a year under the old regime. Interest paid before construction is complete is deductible in five equal yearly instalments starting from the year of completion.
How much down payment is required to buy property using a home loan in Tier 2 cities?
The down payment depends on the loan amount, not the city. RBI permits an LTV of up to 90% for housing loans up to ₹30 lakh, which means a minimum down payment of 10%. For loans above ₹30 lakh and up to ₹75 lakh the LTV limit is 80%, and above ₹75 lakh it is 75%. Stamp duty and registration charges are not counted in the property cost for LTV, except where the cost of the dwelling does not exceed ₹10 lakh.
Are home loan interest rates higher in Tier 2 cities than in metro cities?
RBI's pricing rule has no city element. Since 1 October 2019, banks have had to link new floating-rate housing loans to an external benchmark, such as the RBI policy repo rate, and reset the rate at least once every three months. The spread over the benchmark is set by each bank.
Can first-time home buyers in Tier 2 cities claim home loan subsidies under PMAY 2.0 in 2026?
The Interest Subsidy Scheme of Pradhan Mantri Awas Yojana-Urban 2.0 covers households with annual income up to ₹9 lakh (EWS up to ₹3 lakh, LIG up to ₹6 lakh, MIG up to ₹9 lakh). For a loan of up to ₹25 lakh on a house valued up to ₹35 lakh, the subsidy is 4% on the first ₹8 lakh of the loan for a tenure of up to 12 years. The maximum subsidy is ₹1.80 lakh, released in five yearly instalments into the loan account. The carpet area limit is 120 square metres, and the scheme applies to home loans sanctioned and disbursed on or after 1 September 2024.
