New Delhi, October 28: In a major development for over one crore central government employees and pensioners, the Union Cabinet chaired by Prime Minister Narendra Modi has approved the Terms of Reference (ToR) for the 8th Central Pay Commission. The move marks a significant step toward revising salaries, allowances, and pensions in line with inflation and current economic realities.
According to the Cabinet decision, the commission will submit its recommendations within 18 months of its constitution. It has also been authorized to present interim reports if necessary, enabling the government to implement parts of its recommendations ahead of the final report.
What the 8th Pay Commission Means
The 8th Pay Commission (8th CPC) is tasked with reviewing and recommending revisions in pay scales, allowances, and pensions for central government employees and retirees. The recommendations are expected to take effect from January 1, 2026.
Union Minister Ashwini Vaishnaw had earlier announced in January 2025 that the Centre had approved the formation of the commission. The latest Cabinet approval of the ToR now officially empowers the panel to begin its work.
Composition and Mandate
The 8th Pay Commission will be a temporary body, comprising:
- One Chairperson
- One Part-Time Member
- One Member-Secretary
The panel will consider the economic conditions of the country, the need for fiscal prudence, and the availability of resources for welfare and development initiatives.
It will also assess the impact on state finances, as many state governments typically adopt the central recommendations with modifications. Additionally, it will review the emolument structures and benefits available to employees in Central Public Sector Undertakings (CPSUs) and the private sector.
Why the ToR Matters
The Terms of Reference act as the guiding framework for the commission. Without it, the pay commission cannot begin its deliberations. It defines the scope, objectives, and boundaries of the recommendations to ensure a balanced approach that aligns with the country’s fiscal policies.
The ToR ensures that the pay revisions not only benefit employees but also maintain macroeconomic stability by keeping expenditure growth in check.
Who Will Benefit
The 8th Pay Commission is expected to impact:
- Around 50 lakh serving central government employees, including defence personnel
- Nearly 65 lakh pensioners, including retired defence staff
In total, over one crore individuals will benefit from the revised pay and pension structures once implemented.
Current Salary Structure of Central Employees
As per data from Ambit Institutional Equities:
- Basic Pay accounts for around 51.5% of an employee’s total salary
- Dearness Allowance (DA) constitutes about 30.9%
- House Rent Allowance (HRA) makes up 15.4%
- Transport Allowance forms nearly 2.2%
The upcoming recommendations are expected to recalibrate these components to reflect inflation and changing living standards.
Historical Context: Central Pay Commissions
The Central Pay Commissions are constituted roughly every 10 years to review and rationalize the pay structure of central employees. The 7th Pay Commission, implemented in 2016, had increased salaries by approximately 23.5% on average.
The 8th CPC continues this tradition, ensuring that pay structures remain fair, competitive, and aligned with the evolving economic environment.
Economic Balancing Act
While employees look forward to higher pay and pensions, the government faces the challenge of balancing fiscal responsibility with employee welfare. Experts suggest that a carefully crafted pay revision could also boost consumption and economic activity, especially among the middle-income groups.
Key Highlights at a Glance
- Cabinet Approval: ToR for 8th Pay Commission cleared on October 28
- Timeline: Recommendations to be submitted within 18 months
- Beneficiaries: Over 1 crore central employees and pensioners
- Focus Areas: Pay, pension, and allowance revision
- Expected Implementation: From January 1, 2026
- Objective: Balance employee welfare with fiscal prudence
Summary
The approval of the Terms of Reference for the 8th Pay Commission marks a crucial milestone in the government’s commitment to revising pay and pension structures. With over a crore people set to benefit, the commission’s work will play a pivotal role in shaping the financial well-being of central employees and retirees — while maintaining economic stability.