7th Pay Commission term ends today: December 31, i.e. today, marks the end of the 7th Central Pay Commission’s 10-year term. For over 1.2 crore central government employees and pensioners, it’s time to look back at how their salaries and pensions changed over the decade, and what may lie ahead for them under the newly appointed 8th Pay Commission.
The 7th Pay Commission, which came into effect in January 2016, shaped monthly pay, allowances and retirement benefits for ten years.
Here are the seven most important takeaways for employees and pensioners, explained in a simple way.
1) Massive jump in basic salary
One of the biggest and most visible changes under the 7th Pay Commission was the sharp rise in the basic pay. For example – Level 1 central government employees saw their basic salary rise from Rs 7,000 to Rs 18,000 – a 157% increase based on the fitment factor of 2.57 suggested by the pay panel then.
Likewise, the employees at Level 18 (top level under the new pay matrix) saw their basic pay jump to Rs 2.5 lakh per month from the earlier Rs 90,000 – a 178% growth from the previous pay commission.
As per practice, the dearness allowance (DA) was reset to zero at the outset. After 10 years, the DA for employees now stands at 58%, after the latest 3% hike – the last DA revision under the 7th Pay Commission.
2) The 2.57 fitment factor changed everything
The most talked-about number of the 7th Pay Commission was the fitment factor of 2.57. This factor was used to convert old salaries into the new pay matrix.
In simple terms, an employee’s old basic pay was multiplied by 2.57 to arrive at the new basic pay. This single formula led to a significant jump in salaries and pensions across levels. When allowances are added, many employees saw an effective increase of up to 55% over the decade, especially at entry and junior levels.
3) Allowances were reshaped, not just increased
The 7th Pay Commission did more than raise basic pay. It also reviewed and reworked a wide range of allowances — including HRA, transport allowance and several special allowances.
Some allowances were merged, some were revised and others were capped.
As a result, while basic pay went up, the final take-home salary varied depending on posting location, department and category of employee. This is why some employees felt their salary structure looked very different after implementation.
4) Tax-free gratuity limit hiked to Rs 25 lakh
After the DA touched 50% of the basic salary limit last year, the Centre hiked the tax-free gratuity limit for central government employees from 20 lakh to Rs 25 lakh, effective January 1, 2024. As per norms, all allowances have to be revised upwards by 25% after DA touches the 50% of the basic pay for central government employees.
5) Introduction of new pension plan UPS
Effective April 1, 2025, the Centre launched an optional, hybrid retirement plan called Unified Pension Scheme (UPS) for around 23 lakh central government employees, except for the personnel in armed forces, under the National Pension System (NPS). The UPS, blends features of NPS and the Old Pension Scheme (OPS) to provide a guaranteed, inflation-indexed monthly pension. The UPS assures a minimum payout (like Rs 10,000/month with 10 years service).
6) Higher NPS contribution from central government
Under the 7th Pay Commission, one of the key changes (post-2019) has been the government matching employee’s NPS contributions at a higher 14% (vs 10%) of pay+DA. Also, there has been increased flexibility in choosing fund managers/investment choices, tax benefits extended to locked-in Tier II accounts (under Section 80C), and the introduction of Life Cycle Funds (LC-50, LC-25) for automatic age-based investment shifts. All these changes have made NPS better and more attractive for employees.
7) What comes next: 8th Pay Commission
With the 7th Pay Commission’s term ending, attention has now shifted to the 8th Pay Commission, which has already been constituted. However, employees should not expect immediate salary revisions. The new pay panel has the mandate to submit its report to the government within 18 months.
Typically, a pay commission takes 18 to 24 months to see its recommendations implemented. Once the report is submitted, implementation depends on government approval and budget allocations. In many cases, benefits to employees and pensioners are paid retrospectively from a decided date, rather than immediately.
Summing up…
For serving employees, the 7th Pay Commission defined salaries, allowances and promotion-related pay for a full decade. For pensioners, it shaped retirement income and long-term financial planning.
While the end of its term does not automatically change salaries from tomorrow, it clearly signals a transition phase. The work of the 8th Pay Commission will now be closely watched — both by employees hoping for revisions and by the government balancing fiscal realities.
In short, the 7th Pay Commission may have formally ended today, but its measures and impact will continue to drive future pay commissions’ decisions.