The central government on Thursday announced the eighth pay commission for its employees and pensioners, saying its recommendations will take effect from January 1, 2026.

The recommendations will help around 4.5 million central government employees and 6.8 million pensioners, including defence personnel, according to Union Minister Ashwini Vaishnaw.

“We are all proud of the efforts of all Government employees, who work to build a Viksit Bharat. The Cabinet's decision on the 8th Pay Commission will improve quality of life and give a boost to consumption,” said Prime minister Narendra Modi on X.

The government will appoint a chairperson and two members to lead the eighth pay commission. The seventh commission was constituted in 2016 and its term will conclude in 2026.

A crucial aspect of every pay commission is the fitment factor, which determines the extent of salary and pension increases. The factor is applied to an employee's existing basic pay (which includes their grade pay) to calculate their new basic pay under the revised pay matrix introduced by a Pay Commission.

“ Pay commissions are in most cases established every 10 years to assess and provide changes to the remunerations of central government employees. The last pay commission, i.e. the 7th pay commission took effect in January 2016 and gave a raise on the minimum basic pay from Rs 7,000 to Rs 18,000 using the fitment factor 2.57,” said Rohitaashv Sinha, partner, King Stubb & Kasiva, Advocates and Attorneys.

“For the eighth pay commission, a fitment factor between 2.6 and 2.85 is speculated, potentially increasing salaries by 25-30 per cent and pensions proportionately," said Neeti Sharma, chief executive officer, TeamLease Digital. "The basic minimum is expected to rise beyond Rs 40,000, along with perks, allowances and performance pay.

"Such revisions are crucial to counter inflation, rising living costs, and the widening gap between public and private sector remuneration. Beyond financial benefits, the revised pay scales will also enhance disposable incomes, stimulating consumption and contributing positively to the economy. Periodic revisions reflect the government’s commitment to a fair and equitable system that values its workforce and ensures they are financially empowered,” said Sharma.

For a central government employee with a basic pay of Rs 40,000, the new basic pay would increase to Rs 91,200 based on a fitment factor of 2.28, according to experts. Suppose dearness allowance is set at 70 per cent of the new basic pay, the DA would amount to Rs 63,840. House rent allowance (HRA) at 24 per cent of the new basic pay would amount to Rs 21,888. if basic pay, DA, and HRA is added, gross salary would come to around Rs 176,000.

“The changes are likely to be implemented through the Central Civil Services (Revised Pay) Rules, 2025 and may lead to enhanced pension and other retiral benefits such as EPF, Gratuity etc. and recommend changes in salary structures for government employees,” Sinha said.

Minimum basic salary: Revised to Rs 18,000, up from Rs 7,000.

Fitment factor: Set at 2.57.

Pay structure, allowances, and pensions: Comprehensive review proposed.

Health insurance scheme: Introduced for employees and pensioners.

Pension revision: Updated formulation for individuals retired before January 1, 2016.