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The Central Government has approved the Terms of Reference (TOR) for the 8th Pay Commission. The Union Cabinet led by Prime Minister Narendra Modi took this decision last month. This will benefit about 50 lakh central government employees and 65 lakh pensioners. The hike in Dearness Allowance (DA) will continue until the new recommendations are implemented.
Further, DA will be made a part of basic pay, which will bring a big change in the salary structure. This news is a relief for lakhs of employees who are struggling with inflation. Salary and pension will increase as per the recommendations of the Commission, but for now DA will remain the main support. Let us understand the complete details…
Salary-pension and allowances will be revised
The objective of the 8th Central Pay Commission is to revise the salary, pension and allowances of central government employees. In this, inflation, needs of employees and affordability of the government will be kept in mind. The Cabinet has approved the Terms of Reference (TOR), which outline the functioning of the Commission.
This decision taken last month comes after the 7th Pay Commission. The 7th Commission’s recommendations are in effect since 2016, which calculate DA on the basis of basic pay. Now the 8th Commission will bring a new structure. Although there is no official deadline yet, but it is expected that the work will start soon.
What is the impact of 8th Commission on DA hike?
DA hike is not going to stop until the 8th Pay Commission is implemented. This will be based on the percentage of basic pay. There will be a review every six months in January and July, which will be based on inflation. In October, the government had announced 3% DA hike. This hike is based on the 7th Pay Commission only.
Once the commission comes, the existing DA will be merged into basic pay. This will recalibrate salary components, allowances and retirement benefits. Meaning DA will not be given separately, but will become a part of the basic salary. Experts say that this will be beneficial in the long term.
DA merger will lead to salary overhaul
Clear Tax’s tax expert CA Chandani Anandan says that till the implementation of the 8th Pay Commission, DA will remain the same percentage of basic pay. It will be revised every year in January-July on the basis of inflation.
When the Commission comes, a new structure will be formed by merging the current DA with the basic pay. DA will become a part of the base salary instead of a separate allowance, which will lead to changes in allowances and benefits. DA hike provides immediate relief, but commission will require major overhaul. Government employee unions are also demanding the same.
How much will be the increase in salary and pension?
The recommendations of the 8th Commission are expected to increase salary, HRA (House Rent Allowance), TA (Transport Allowance) and other benefits. About 50 lakh central employees will get the benefit, which also includes defense personnel. 65 lakh pensioners including defense retirees will also get increase in pension.
Earlier 65% of the salary was basic pay, now it is around 50%. The rest has been shifted to allowance. DA is the inflation adjustment, which maintains purchasing power. After merger with the Commission, the basic pay will increase, due to which the overall income will increase.
When will the new commission come into effect?
There is no fixed date for when the Commission’s recommendations will be implemented. But if we look at the previous commissions, it is likely to be effective from January 1. The government will have to check affordability. It will depend on inflation control and budget.
Employee unions are demanding implementation of the 8th Commission soon. If all goes well, the new salary structure may be implemented from January 1, 2026. Till then DA hike will suffice.
Understand the salary calculation of 8th pay scale
How much the basic salary will increase depends on the fitment factor and DA merger. The fitment factor in the 7th Pay Commission was 2.57. In 8th it can be 2.46.
DA starts from zero in every pay commission. This is because the new basic salary is already increased keeping inflation in mind. After this DA again increases slowly.
Currently DA is 58% of basic pay. Due to removal of DA, the increase in total salary (Basic + DA + HRA) may be slightly less, because 58% of DA will be removed.
Example:
Suppose, you are in Level 6 and your current salary as per 7th Pay Commission is:
- Basic Pay: ₹35,400
- AND (58%): ₹20,532
- HRA (Metro, 27%): ₹9,558
- Total Salary: ₹65,490
If Fitment 2.46 is implemented in the 8th Pay Commission, the new salary will be:
- New Basic Pay: ₹35,400 x 2.46 = ₹87,084
- DA: 0% (reset)
- HARA (27%): ₹87,084 x 27% = ₹23,513
- Total Salary: ₹87,084 + ₹23,513 = ₹1,10,597
What is fitment factor?
This is a multiplier number, which is multiplied by the existing basic salary to arrive at the new basic salary. The Pay Commission decides it keeping in mind inflation and living cost.
Who will get the benefit of 8th Pay Commission and who will not?
- You will get benefit: Central Government Employees, Defense Personnel, Railway Employees, Teachers of Central Institutions, 100% Government Owned PSUs, Pensioners
- No benefit: State Government Employees, Public Sector Bank Employees, Employees of RBI and other regulatory bodies, Bank Pensioners
States constitute their own separate pay commissions, which adopt the central recommendations after modification. At the same time, employees of public sector banks do not get the benefit of pay commission because they depend on bilateral agreements with the Indian Banks Association (IBA).
When were the last pay commissions formed and when were they implemented?
- 5th Pay Commission: It was formed in April 1994. The report was submitted to the government in January 1997, but the recommendations came into effect only from 1 January 1996. Earlier there were 51 pay scales, these were reduced to 34.
- Sixth Pay Commission: It was established on 20 October 2006. The report was ready in March 2008 and reached the government. The report was approved in August 2008 and the recommendations came into effect from 1 January 2006.
- 7th Pay Commission: It was created in February 2014 and the terms of reference were finalized by March 2014. The report was submitted in November 2015. Approved by the government in June 2016 and the recommendations came into effect from 1 January 2016.
Union Minister said – the date of implementation will come in the interim report
Union IT Minister Ashwini Vaishnav had said that the norms for implementation of Pay Commission are already almost decided, but the formal way is that an interim report will come, which will contain information about the implementation of the pay scale. There is full hope that this will come into effect from January 1, 2026.
This commission will give its recommendations within 18 months from the date of formation. If necessary, it may consider sending interim reports on any issue as soon as the recommendations are finalized.
When the commission makes salary-pension recommendations, it will keep these 5 things in mind…
- The commission will see how the country’s economy is doing. How much is inflation, what is GDP growth. Increase the salary to such an extent that the government’s expenditure remains under control, otherwise the debt will increase.
- By increasing the salary, the government should not have less money for development. Like building roads, schools, hospitals or running schemes for the poor.
- This has to be kept in mind in those pension schemes where employees do not deduct money (non-contributory). That is, the burden on the government should not increase due to old pension schemes.
- Most of the state governments adopt the recommendations of the Center with slight modifications. The commission will increase the salary only keeping in mind the budget of the states.
- What salary setup, bonus, and working conditions are the employees getting in government companies and private firms? So that the government salary matches them.
Commission considers issues like salary system, pension
Central Pay Commission is formed every few years, so that issues like salary system, pension can be considered. This commission looks at what changes are necessary and then gives recommendations. Generally, these recommendations are implemented every ten years. According to the same pattern, the recommendations of the 8th Central Pay Commission are also expected to be implemented from January 1, 2026.
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