New Delhi, December 1, 2025 – The Ministry of Finance addressed the Lok Sabha today regarding the 8th Pay Commission, clarifying its stance on key issues affecting central government employees and pensioners. Minister of State (MoS) for Finance confirmed the notification of the 8th Pay Commission, which is scheduled to take effect from January 1, 2026. However, the MoS also stated that there is no current plan to merge the existing Dearness Allowance (DA) with the basic pay.
The announcement comes amid heightened anticipation and debate surrounding the merger of DA with basic pay, a practice that has been historically followed when DA crosses the 50% threshold. As of July 2025, the DA stands at 58% and is expected to rise further. Employee unions have been advocating for the merger, citing that the current DA/Dearness Relief (DR) mechanism has failed to keep pace with real-time retail inflation over the past three decades. They argue that without a DA merger, employees are effectively losing purchasing power each year. The last DA merger took place in 2004, prior to the 6th Pay Commission.
The Finance Ministry's response was to a query raised in the Lok Sabha by MP Anand Bhadauria, who sought clarity on the constitution of the 8th Central Pay Commission (CPC) and the potential merger of DA with basic pay. The question underscored the perception that the existing DA/DR mechanism has not kept pace with inflation.
The 8th Pay Commission's mandate includes addressing compensation, pensions, and welfare measures for central government employees and retirees. The commission aims to align these with current economic conditions and improve the quality of life for government employees and retirees. The commission, comprising a Chairperson, one part-time member, and a Member-Secretary, will submit its report within 18 months. Justice Ranjana Prakash Desai has been appointed as the Chairperson, with Prof. Pulak Ghosh as the part-time member and Pankaj Jain as the Member-Secretary.
A key aspect of the 8th Pay Commission is the proposed fitment factor, which could lead to a significant increase in the minimum wage. While earlier reports suggested a fitment factor of 2.28, increasing the minimum wage by 34.1%, more recent analysis suggests it could range from 1.83 to 2.86. Some experts predict a fitment factor of at least 2.13. The fitment factor is a crucial element in determining the revised salary structure for employees.
The decision to not merge DA with basic pay has sparked concerns among employee unions. They argue that a DA merger would provide an immediate salary boost and improve retirement benefits, as allowances and pension components are calculated based on basic pay. Some unions are calling for protests against the government's decision and demanding amendments to the Terms of Reference (ToR) for the 8th Pay Commission.
Several employee representative bodies and trade unions have alleged that the government has excluded approximately 69 lakh pensioners from the purview of the new pay panel and has not mentioned the recommendations' implementation date in the ToR. Other demands include revising the Pay Matrix structure to address stagnation and slow career progression, stopping distinctions among pensioners, releasing pending DA/DR from the pandemic period, and filling vacancies.
The 7th Pay Commission is nearing its end on December 31, 2025. The 8th Pay Commission is expected to submit its recommendations within 12-18 months. The implementation of the 8th Pay Commission's recommendations may take at least 24 months.
