7th Central Pay Commission Recommendations

Pay Commission is a body established by the Central Government that reviews and recommends changes in the salary structure of government employees. This panel also reviews allowances, bonuses and other employment benefits for government employees. 

The Pay Commission considers various aspects of the economy to come up with recommendations. It is constituted every 10 years and seven pay commissions have been set up since independence.

Pay Commission – General Overview

Here are the categories of government employees who are included in the scope of the Pay Commission:

  • Central government employees
  • Employees and officers of the Indian Audit and Accounts department
  • Personnel of Union Territory
  • Officers and employees of the Supreme Court
  • Members of regulatory bodies that have been set up by Acts of Parliament
  • Personnel of the Indian Defence Forces

The Pay Commission considers basic salary, dearness allowance, travel allowance, house rent allowance, etc., of the categories of employees mentioned above. It also considers other employment benefits such as maternity, paternity leave, and additional allowances for working in harsh conditions. Its primary objective is to review salary increments, rights of employees and employee benefits.

7th Central Pay Commission of India

The 7th Central Pay Commission was chaired by Justice Ashok Mathur and was established by the UPA government on February 28, 2014. Former Finance Minister P. Chidambaram announced it, and its constitution was approved by the then Prime Minister Dr Manmohan Singh. 

After intense evaluation and multiple rounds of discussions, the recommendations of the 7th Pay Commission were approved by the Union Cabinet in June 2016.

Also Read: What Is GPF- General Provident Fund

Highlights of the 7th Pay Commission

Here is a list of key aspects and features of the 7th Pay Commission:

  • Maximum Pay for Government Employees

The 7th Pay Commission has recommended increasing the maximum pay for government employees to ₹ 2.5 lakh. However, this increase is for apex-scale employees such as Cabinet Secretaries and others at the same scale.

  • Minimum Pay for Government Employees

The 7th Pay Commission has also recommended an increase in the minimum pay for government employees from ₹ 7,000 to ₹ 18,000. Therefore, the minimum pay for an entry-level government recruit will be ₹ 18,000 per month and for Class 1 officers (gazetted officers) it will be ₹ 56,100. 

  • Pay Matrix

The 7th Pay Commission has recommended dissolving the existing Pay Band and Grade Pay. Henceforth, the salary of government employees will be decided by levels as per the new Pay Matrix and not as per the previous Grade Pay. Several Pay Matrices have been designed for different groups to ensure transparency.

  • New Pay Structure

The new payment structure, as per the recommendation of the 7th Pay Commission, includes all existing levels of the previous pay matrix. The government has sanctioned the Index of Rationalisation and decided to offer minimum pay at every level pay matrix on the basis of accountability, responsibility and increasing roles. 

  • Fitment Factor

A uniform fitment factor of 2.57 shall be applicable to arrive at a new pay scale. This means that there will be an annual increment of 2.57 times more than what was awarded in the past. The 7th Pay Commission has recommended keeping the rate of increment at 3%. 

  • Gratuity Limit

Gratuity ceiling has increased from ₹ 10 lakh to ₹ 20 lakh. 

  • Military Service Pay

The 7th Pay Commission has recommended revising Military Service Payment rates from ₹ 1,000, ₹ 2,000, ₹ 4,200 and ₹ 6,000 to ₹ 3,600, ₹ 5,200, ₹ 10,800 and ₹ 15,500, respectively. This will be admissible for respective personnel in different defence forces categories.

  • Allowances

After analysing around 197 allowances, the 7th Pay Commission has recommended abolishing 53 allowances and subsuming 37 others into an existing or a newly proposed allowance. This is a significant change and might impact government employees. 

  • Pension Revision

There has been a recommendation to revise the pension formula for civil services employees. This includes defence personnel and Central Armed Police Forces (CAPF) who have retired before January 01, 2016. This formula will help to bring parity between current retirees and existing pensioners.

  • Change in Advances

The 7th Pay Commission has recommended raising House Building Allowance from ₹ 7.50 lakh to ₹ 25 lakh. Except for Personal Computer allowance and House Building Allowance, all other interest-bearing and non-interest-bearing allowances have been abolished in its recommendations. 

  • Central Government Employees Group Insurance Scheme (CGEGIS)

The 7th Pay Commission has come up with some changes for the CGEGIS scheme, as you can see in the table below:

Level of EmployeeCurrent Monthly Deduction Monthly Deduction RecommendedCurrent Insurance AmountInsurance Amount Recommended
10 and above₹ 120₹ 5,000₹ 1,20,000₹ 50,00,000
6 to 9₹ 60₹ 2,500₹ 60,000₹ 25,00,000
1 to 5₹ 30₹ 1,500₹ 30,000₹ 15,00,000
  • Work-Related Illness and Injury Leave (WRILL)

Sick leave, special disability leave and hospital leave shall be merged together and referred to as WRILL. According to the recommendation, full payment and allowances will be granted if employees require hospitalisation due to WRILL.

  • Disability Pension for Armed Forces

The 7th Pay Commission has recommended implementing a slab-based system for disability pension instead of the present disability pension regime based on percentile.

  • Modified Assured Career Progression (MACP)

As per the recommendations of the Commission, there will be an enhancement in employee benchmark from ‘Good’ to ‘Very Good’. There has also been a proposal that employees who do not meet this benchmark will neither receive an annual increment nor a promotion for their first 20 years of service.

Also Read: Are Retirement Benefits Taxable?

Impact of the 7th Pay Commission Recommendations

Here is how the recommendations of the 7th Pay Commission will affect the economy of the country and the government: 

Impact on the Economy of India

  • Government of India employs around 10 million people in the country, which makes it the largest employer in the country. Therefore, a salary increase will supposedly increase customer consumption around the country.  
  • Spending will increase after money is disbursed by the government. People will be more likely to buy electronic goods, vehicles etc., thereby increasing consumption and sales. 
  • Increased consumption in rural and urban areas will boost the country’s GDP.

 Impact on Government’s Expenditure

  • The cost of implementation of 7th Pay Commission is expected to be around ₹1,02,100 crore. There is an overall increase in payment, allowances and pension of 23.55%. 
  • According to estimates, implementing this Commission will put a cumulative fiscal burden of ₹ 60,000 crore on the government. This is inclusive of pension hikes and arrears but excludes allowances. 
  • Out of ₹ 60,000 crore, only ₹ 43,200 has been budgeted. Funding the remaining deficit might be a challenge for the government. Managing this deficit might challenge the government’s target of maintaining the fiscal deficit within 3.5% of GDP.

Also Read: Dearness Allowance (DA) – Meaning, Types, DA Calculation & Taxability

Latest Updates on 7th Pay Commission

Here are some of the latest updates in relation to the 7th Pay Commission:

  • As a part of the cabinet decision on September 28, 2022, there has been a 4% hike in dearness allowance (DA). As a result, DA for central government employees will increase from 34% to 38% of the basic salary. This is applicable from July 2022. 
  • As of August 2022, there is no consideration for setting up of 8th Pay Commission for central government employees. However, the government is working towards building a system that increases the salary of employees on the basis of performance-linked increments.
  • Government will make changes in existing rules that govern employee increment and promotion. An auto-pay revision system can be introduced for promotion. The grade of the employee will automatically rise.

Also Read: HRA or House Rent Allowance: Deduction & Calculation

Final Words

These were some of the vital updates in relation to the 7th Pay Commission recommendations. These recommendations were introduced during the UPA regime and are still an important part of our economy as a vast population’s salary depends on it. This also has a direct effect on the fiscal deficit position as well as the GDP of the country. 

Frequently Asked Questions

How do I calculate my salary as per the recommendations of the 7th Pay Commission?

The salary is fixed on the basis of the fitment factor recommendation that got the approval of the government. The common fitment factor is 2.57 for all government employees. Multiplying it with the basic salary as of December 31, 2015, will help you match the pay level figure in the pay matrix that you are entitled to.

What is the 7th Pay Matrix?

The 7th Pay Matrix is a table that central government employees use to calculate their salary. It has been in effect since January 01, 2016, as per the recommendation of the 7th Pay Commission.

Animesh Gupta is a Chartered Accountant by profession and a NISM certified Mutual Fund Expert. He has over 4+ years of experience working in the Financial Services Industry. In his role at Wintwealth, he is part of the Credit and Risk team and evaluates the risk of the bonds available on Wintwealth's platform.

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