In a move anticipated by millions of central government employees and pensioners, the Union Cabinet, chaired by Prime Minister Narendra Modi, has officially approved the Terms of Reference (ToR) for the 8th Central Pay Commission (CPC). This decision, announced on Tuesday, October 28, 2025, marks a significant step towards revising the pay structure, allowances, and pension benefits for central government employees.

The government initially announced the formation of the 8th CPC in January 2025 to examine and recommend changes in the salaries and other benefits of central government employees. Union Minister Ashwini Vaishnaw highlighted the extensive consultations involved, including input from key ministries such as Defence, Home, Railways, and the Department of Personnel and Training (DoPT). Justice Ranjana Prakash Desai, a former Supreme Court judge, has been appointed as the Chairperson of the 8th Pay Commission. She is also the first woman ever to head a Central Pay Commission.

What the 8th Pay Commission Entails

Central Pay Commissions are periodically established to review and recommend changes to the emoluments structure, retirement benefits, and service conditions of central government employees. These recommendations are typically implemented every ten years. Following this pattern, the 8th CPC's recommendations are expected to take effect from January 1, 2026. The 8th Central Pay Commission's proposals will impact the salaries of approximately 50 lakh central government staff members and 69 lakh retired personnel.

The Terms of Reference (ToR) serve as the guiding document for the commission, outlining the scope of its review, including pay structures, benefits, and retirement schemes. The ToR includes essential definitions, terms, and conditions that guide the commission's work. The finalized ToR is submitted for Cabinet approval and acts as a main reference when a pay commission develops its recommendations.

Key Considerations for the Commission

The 8th CPC will consider various factors while formulating its recommendations. These include:

• The economic conditions in the country and the need for fiscal prudence.
• Ensuring adequate resources are available for developmental expenditure and welfare measures.
• The financial burden of unfunded pension schemes.
• The impact of its recommendations on state finances.
• The current emolument structure, benefits, and working conditions of employees in central public sector undertakings and the private sector.

Impact on Employees

The implementation of the 8th CPC is expected to bring significant changes to the financial well-being of central government employees and pensioners. These may include:

• Revised Pay Structure: The commission will likely recommend changes to the pay matrix and fitment factor, which determine the basic pay.
• Increased Allowances: Employees can anticipate revisions in allowances such as Dearness Allowance (DA), House Rent Allowance (HRA), and Transport Allowance (TA).
• Pension Revisions: Pensioners can expect an increase in their monthly pensions and improvements in retirement benefits.

Timeline and Next Steps

The 8th CPC is expected to submit its report within 18 months of its constitution. After the commission submits its recommendations, the Union Cabinet can suggest changes. Once the Union Cabinet approves, the recommendations will be implemented.

I&B Minister Ashwini Vaishnaw indicated that the recommendations would likely be implemented from January 1, 2026. 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.

Potential Changes and Considerations

Several potential changes are under discussion, including:

• Increasing the consumption units from 3 family units to 3.6 family units.
• Merging non-viable pay scales such as Level-1 with Level-2 and Level-3 with Level-4 and Level-5 with Level-6.
• Addressing existing anomalies in the MACP scheme and recommending a minimum of 3 promotions in service.
• The merger of Dearness Allowance (DA) with the basic salary.

Impact on States and Other Sectors

The recommendations of the 8th CPC are expected to influence pay structures in Public Sector Undertakings (PSUs) and state governments as well. States often follow these decisions with some changes. The 8th pay panel will review the financial burden of unfunded pension schemes and assess how its recommendations might affect the finances of state governments. It will also compare the pay, benefits, and working conditions of Central government employees with those in public sector undertakings and the private sector.