ISC Explains: The 8th Pay Commission

The Indian government’s Union Cabinet approved the Terms of Reference (ToR) for the 8th Central Pay Commission on October 28, 2025. This formal approval establishes the commission, which is tasked with reviewing the pay structure, allowances, and pension schemes for central government employees. The commission will submit its recommendations within 18 months, and the new pay scales are expected to be implemented starting January 1, 2026.

Key Points about the 8th Pay Commission

Formation and Timeline: The Union Cabinet approved the Commission’s Terms of Reference (ToR) in October 2025. The three-member panel, chaired by retired Supreme Court Justice Ranjana Prakash Desai, is mandated to submit its recommendations within 18 months, likely by April 2027. The implementation date, however, is expected to be retrospective from January 1, 2026.
Scope: The commission covers central government civilian employees, defence personnel, members of the All India Services, and employees of Union Territories. There has been some controversy and concern raised by employee federations regarding the explicit mention of existing pensioners in the ToR, although the government has indicated they are covered under “retirement benefits”.
Objectives: The primary objective is to create a rational, efficient, and performance-oriented pay framework that accounts for current economic conditions, inflation, and fiscal prudence. It aims to attract talent, reduce pay disparities, and simplify the existing pay structure.
Expected Changes:
- Salary Hike: Employees can expect a significant salary and pension hike, with estimates suggesting an overall increase of 30-34%.
- Fitment Factor: This crucial multiplier, which determines the new basic pay, is expected to be in the range of 2.8 to 3.0, a potential increase from the 7th CPC’s 2.57.
- Dearness Allowance (DA): The current DA (at 58% as of November 2025) is expected to be merged into the new basic pay, resetting the DA to zero once the new structure is implemented. It will then be revised twice a year as usual.
- Minimum Pay: The minimum basic pay for a new employee is expected to rise significantly from the current ₹18,000 to a projected range of around ₹32,400 to ₹41,000, depending on the final fitment factor.
- Allowances: Allowances such as House Rent Allowance (HRA) and Travel Allowance (TA) will be recalculated based on the new, higher basic pay.

The final report will be a balancing act between employee welfare and the government’s financial stability, with the goal of providing a much-needed financial boost to millions of households.

Quick details to remember

Approval date: The Union Cabinet approved the ToR on October 28, 2025.
Commission structure: It will be a temporary body with a Chairperson, one Part-Time Member, and a Member-Secretary.
Report timeline: The commission has 18 months from its constitution to submit its recommendations.
Implementation timeline: The new pay scales are projected to be implemented starting January 1, 2026, though full implementation may take longer.
Scope: The commission will consider the economic conditions, developmental needs, and fiscal prudence while making its recommendations.
Impact: The approval is expected to lead to a salary increase for central government employees and pensioners, affecting around 50 lakh employees and 69 lakh pensioners.

About the Central Pay Commission

The Pay Commission is a committee constituted by the Government of India decennially, responsible for tabling recommendations regarding changes in the salary structure of federal employees, both civilian and defence. Established in 1946, seven pay commissions have been set up each decade since India’s independence to review and provide recommendations on the work and pay structure of all the civil and military divisions comprising the Government of India. Headquartered in New Delhi, the commission is tasked with making its recommendations within 18 months from the date of its constitution. In January 2025, the formation of the Eighth Pay Commission received approval from the Prime Minister of India.

First Pay Commission

The first pay commission, established in January 1946, submitted its report in May 1947 to the Interim Government of India.^[1] It was under the chairmanship of Srinivasa Varadachariar and comprised nine members.^[3] The mandate of the First Pay Commission was to examine and recommend the emolument structure of the government’s civilian employees.

Second Pay Commission

The Second Pay Commission was set up in August 1957, 10 years after India’s independence;^[6] it furnished its report after two years. The recommendations of the Second Pay Commission had a financial impact of ₹39.6 crores. The chairman of the Second Pay Commission was Jagannath Das.

Raghuramiah Committee: The Departmental Pay Committee, set up after the Second Pay Commission, was called the Raghuramiah Committee (1960), which had representation from the armed forces too. It examined the emoluments of the armed forces and provided the necessary recommendations.^[4]

Third Pay Commission

The Third Pay Commission was constituted in April 1970 and presented its findings in March 1973.^[7] The Commission was chaired by Raghubar Dayal, a former justice of the Supreme Court of India, with Niharranjan Ray, A.K. Das Gupta, and V.R. Pillai as its members.

Fourth Pay Commission

Constituted in June 1983, its report was presented in three phases within four years, and the financial burden to the government totalled ₹1282 crore.^[8] The chairman of the Fourth Pay Commission was P.N. Singhal, a former judge of the Supreme Court of India.

Fourth Pay Commission and the Armed Forces: The government then introduced the concept of Rank Pay for armed forces officers following the recommendations of the Fourth Pay Commission. The Rank Pay, which ranged from ₹200 to ₹1,200, applied to officers from the rank of Second Lieutenant to Brigadier in the Indian Army, and equivalent ranks in the Indian Air Force and Indian Navy. Unlike an additional allowance, the Rank Pay was deducted from the officer’s pay grade. This adjustment disrupted the established pay parity between the military and police services. Police officers and officers from other All India Services with 14 years of service, who were previously in the same pay grade as Majors, were reclassified to Brigadier-equivalent grades under the new pay structure.

Fifth Pay Commission

The notification for the establishment of the Fifth Pay Commission was issued on 9 April 1994, but it became operational only on 2 May 1994, with the assumption of charge by the Member Secretary.^[9] The Chairman of the Fifth Pay Commission was S. Ratnavel Pandian, a former justice of the Supreme Court of India. The Commission’s members included Suresh Tendulkar, a professor at the Delhi School of Economics, and M.K. Kaw, an officer of the Indian Administrative Service. The Fifth Pay Commission consisted of three members, with no military representation.

Sixth Pay Commission

In July 2006, the Cabinet approved the constitution of the Sixth Pay Commission. This commission—helmed by B.N. Srikrishna—was granted 18 months to table its recommendations. The Commission tabled its findings and recommendations in March 2008, which were subsequently approved by the Union Cabinet in August 2008.

Seventh Pay Commission

On 25 September 2013, the Government of India approved the constitution of the Seventh Pay Commission. Its recommendations were expected to be implemented with effect from 1 January 2016. A.K. Mathur—a former justice of the Supreme Court of India—spearheaded the Seventh Pay Commission.

On 29 June 2016, the Union Cabinet approved the Seventh Pay Commission’s recommendations, which were to be implemented from 1 January 2016. The 7th Pay Commission was chaired by Justice Ashok Kumar Mathur, with Vivek Rae as a full-time member and Dr Rathin Roy as a part-time member. Meena Agarwal served as the Secretary for the commission.

The Expected Impact of the 8th Pay Commission

The 8th Pay Commission, expected to take effect from January 1, 2026, will primarily impact the economy and the financial well-being of central government employees and pensioners through significant salary and pension revisions, increased consumer spending, and potential fiscal implications for the government.

Key Impacts on Employees and Pensioners

Substantial Salary Hike: The commission is expected to recommend a significant increase in the fitment factor (a multiplier used to calculate the new basic pay), leading to a salary hike of anywhere between 30% and 50%. The minimum basic pay for an entry-level employee is projected to rise from the current ₹18,000 to approximately ₹41,000 or more.
Revised Allowances: Allowances such as Dearness Allowance (DA), House Rent Allowance (HRA), and Travel Allowance (TA) will be revised and recalculated based on the new, higher basic pay. The accumulated DA (projected to be around 58% by then) is expected to be merged into the basic pay, and the DA cycle will reset to zero.
Increased Pensions: Nearly 6.9 million pensioners are expected to receive a proportional increase in their monthly pensions and revised Dearness Relief (DR), offering greater financial security.
Higher Morale and Job Satisfaction: The enhanced compensation is intended to help employees cope with rising inflation and living costs, leading to improved morale, job satisfaction, and a boost in overall motivation within the public sector.
Arrears Payments: Since the recommendations are expected to be implemented retrospectively from January 1, 2026, employees will receive lump-sum payments of arrears, which can be substantial.

Broader Economic Impacts

Boost to Consumer Spending: The increase in disposable income for millions of families is likely to stimulate demand in key economic sectors such as real estate, automobiles, and consumer goods, potentially contributing to GDP growth.
Impact on Investments: The inflow of arrears and higher salaries may lead to increased investments in various financial instruments like fixed deposits and mutual funds.
Fiscal Pressure: The implementation will lead to an additional annual outgo for the central government, putting pressure on public finances. The commission’s mandate requires a balance between employee welfare and fiscal prudence to avoid an unsustainable strain on the national exchequer.
Impact on State Governments: While the commission’s recommendations directly apply to central government employees, most state governments tend to adopt the central pay structure with some modifications, extending the economic and fiscal impact nationwide.

The commission, headed by Justice Ranjana Prakash Desai, is expected to submit its final recommendations by mid-2027, with the revised structure becoming effective from January 1, 2026.

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ISC Explains: The 8th Pay Commission

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