8th pay commission: Here's what ToR says on dearness allowance and govt's response to DA merger demands

The 8th central pay commission (CPC) is in its consultation stage, gathering inputs from central government employees and pensioner groups, unions and stakeholders before it makes its final recommendations in May next year.

Former Supreme Court Justice Ranjana Prakash Desai is the Chair, and the panel includes Member-Secretary — Pankaj Jain, a former IAS officer, and Member of the Commission — Professor Pulak Ghosh, a tenured Professor of Finance and Member of the Economic Advisory Council to the Prime Minister.

The decisions are set to benefit more than 1 crore people, including around 50 lakh central government employees and about 65 lakh pensioners, including personnel and retirees with the defence and railway ministries.

Dearness allowance is a component of basic salary tied to inflation. It impacts the monthly pay of central government employees, public sector staff, defence personnel, bank employees and retired pensioners aimed at mitigating rising inflation.

DA is revised twice annually based on the All-India Consumer Price Index (AICPI) formula as prescribed under the 7th central pay commission. Annually, the announcements are mostly made in March and October, with rollouts scheduled in January and July.

The Terms of Reference (ToR) of the 8th CPC outline what central government employees and pensioners can expect from its final recommendations. Approved by the Union Cabinet last year, the ToR defines the commission's scope of work and specifies the areas on which it must make recommendations.

The panel is expected to examine and recommend changes that are desirable and feasible in the emoluments, including pay (usually includes salary structure, pay matrix), allowances (usually include DA, Dearness Relief, HRA), other facilities / benefits, in cash or kind (includes increment, promotions, etc.), having regard to rationalisation, contemporary functional requirements and specialised needs

Multiple employee unions and representative groups have demanded that the Centre make an official announcement on DA merger. This is because the 7th CPC stipulated that DA may be merged with basic salary if it exceeds 50% and as of the last update, the component now comprises 60% of basic pay.

Notably, the government has not officially announced a DA merger (which would expand basic pay) as of October 2026, the issue has gained traction because basic salary determines other components of compensation i.e. provident fund contribution, pension, allowances, gratuity, and more. Thus, higher DA and by association basic pay means increase in overall salary and linked allowances.

Amid demands from employee unions for DA merger with basic pay and a higher fitment factor under the 8th pay commission (CPC), the Centre has clarified that no such proposal is currently under consideration.

• The All India Defence Employees Federation (AIDEF) is seeking inflation-adjusted compensation demands. It has also suggested that minimum pay be hiked to ₹69,000 per month.
• The Maharashtra Old Pension Organisation has suggested minimum DA hike of 4% and DA merger at 50%. It has also suggested that minimum pay be hiked to ₹65,000 per month.
• The National Council – Joint Consultative Machinery (NC-JCM) has demanded that DA be updated into an inflation-linked wage model. It has also suggested that minimum pay be hiked to ₹69,000 per month, from the current ₹18,000.

• The AIDEF in a second memorandum submitted to the 8th CPC also sought a change in how DA is calculated. It argued that the current formula assigns higher weightage to relatively stable expenditure categories, while employees, especially those on lower pay grades, spend a larger percentage of their salary on food, education, healthcare, house rent, medicines and other essentials.

The ToR outlines that recommendations be announced within 18 months of panel constitution (on 3 November 2025). Thus, the absolute deadline to submit the report is May 2027.

Once the pay commission's recommendations are made, the rollout could take another two to three years to complete. This means that hikes announced in 2027 may only be fully implemented by 2029 or 2030.

Jocelyn Fernandes is a journalist and editor with nearly 13 years of experience covering the business, corporate, economy and markets beats in news.<br> As chief content producer for around three years at Livemint (Hindustan Times), Jocelyn publishes breaking stories, explainers, features and live blogs on a range of business and economy topics, including the Budget, corporate developments, stock markets, income tax, money and personal finance, cryptocurrency, government policy, impact of US tariffs, international developments and more.<br> Jocelyn's writing philosophy is focused on delivering news in an accurate and accessible format for readers. She thus focuses her news coverage on explainers and FAQs in order to breakdown business, corporate, economic, and policy topics that are of importance to everyday readers.<br> She holds a Bachelors in Mass Media (BMM) and Post Graduate Diploma (PGD) in Journalism and Communication and has previously written for online business and markets news site Moneycontrol (Network18), Business-to-business (B2B) trade publications — the industry magazines Power Today and Solar Today (ASAPP Media), and the national news agency United News of India (UNI).<br> Outside of work, Jocelyn keeps up-to-date with local and international news, enjoys reading fiction books, novels and short stories, and enjoys movies, travelling and art. <br> She can be found on X and LinkedIn, and reached by email: <a href="jocelyn.fernandes@htdigital.in">jocelyn.fernandes@htdigital.in</a> <br> X/ Twitter handle: <a href="https://x.com/scribeJocelyn">@scribeJocelyn</a> <br> LinkedIn: <a href="https://in.linkedin.com/in/jocelyn-fernandes-journalist">LinkedIn</a>

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