Cabinet approves terms of reference of 8th Pay Commission

The government had announced the formation of the 8th Central Pay Commission in January this year to examine and recommend changes in the salaries and other benefits of central government employees. The terms of reference have been finalised after consultations with various ministries, state governments and staff side of the Joint Consultative Machinery.

“The Central Pay Commissions are periodically constituted to go into various issues of emoluments structure, retirement benefits and other service conditions of Central Government employees and to make recommendations on the changes required thereon. Usually, the recommendations of the pay commissions are implemented after a gap of every 10 years. Going by this trend, the effect of the 8th Central Pay Commission recommendations would normally be expected from 01.01.2026,” the government said in a release.

This essentially means that the pay and pension hikes are likely to be implemented retrospectively from January 1, 2026, with arrears being paid when the recommendations take effect. Allowances, however, are likely to be revised prospectively.

The Central government’s outgo on pay, pension and allowances is estimated at over Rs 7 lakh crore in 2025-26, which is around 18% of the revenue expenditure.

The previous Central Pay Commission recommendations were implemented with effect from January 1, 2016, with retrospective effect for pay and pension.

According to the government, while making its recommendations, the Commission will keep in view the economic conditions in the country and the need for fiscal prudence, the need to ensure that adequate resources are available for developmental expenditure and welfare measures, and the unfunded cost of non-contributory pension schemes. It will also take into consideration the likely impact of the recommendations on state government finances as states usually adopt the recommendations with some modifications, and the prevailing emolument structure, benefits, and working conditions available to employees of Central public sector undertakings and the private sector.

The Seventh Central Pay Commission had recommended a 23.55% increase in pay, allowances and pension, which led to an additional annual outgo of Rs 1.02 lakh crore for the Central government.