All about 7th Central Pay Commission Pay Scale

The Indian government is one of the biggest employers in the country. According to the Interim Budget, the Central Government employee strength is set to peak to 3.51 million in 2024. The Indian government appoints a Pay Commission to recommend changes in the salary structure of both civil and military personnel. The 7th Central Pay Commission was constituted in 2014 to examine and review the existing pay structure and propose changes in pay, allowances, and pensions. In this guide, we explore the recommendations, implementation, effects, and benefits of the 7th Pay Commission.

A Pay Commission is an administrative body appointed by the Indian government to make recommendations regarding the salary structures of central government employees. The appointed Pay Commission reviews and recommends changes to the salary and its structure, including allowances, bonus, and other benefits of all central government employees across departments.Pay Commissions are constituted every 10 years. Post India’s independence in 1947, seven pay commissions have been formed to examine and suggest changes to the pay structures of government employees. Currently, the recommendations of 7th central pay commission remain in effect. The following categories of employees fall within the scope of the Pay Commission’s recommendations:

• Central government employees
• Personnel of the Union Territories
• Members of regulatory bodies established by Acts of the Parliament
• Employees and personnel of the Indian Audit and Accounts Departments
• Personnel belonging to the Indian Defence Forces
• Officers and members of the Supreme Court

Pay Commissions offer recommendations after thoroughly assessing various factors like the condition of the Indian economy, CPI (Consumer Price Index), impact on revenue, etc. To arrive at a competitive salary and benefits package, Pay Commissions also consider pay structures used in the private sector and around the world, ensuring parity. As per government mandates, each Pay Commission has 18 months to examine and deliberate on these factors. The Commission must submit its recommendations within 18 months of its constitution. Until 2024, India has constituted a total of seven pay commissions with the 7ty Pay Commission being the latest one.

The UPA Government constituted the Seventh Pay Commission on 28th February 2014. The Commission was chaired by Justice Ashok Kumar Mathur. The purpose of the 7nth Pay Commission was to review the remuneration structure of all central government personnel - including staffers and pensioners. The focus of the commission was on pay, allowances, and pensions. The 7th Pay Commission submitted its recommendations in an 899-page report on 19th November 2015 to the then Finance Minister, Mr. Arun Jaitley.

The 7th Central Pay Commission Panel made its recommendations after careful deliberations and assessment of data from multiple sources. By combining data from different sources with three specifically commissioned studies, the 7nth Pay Commission Panel espoused a holistic approach to formulate its recommendations. The three studies commissioned by the 7th Pay Commission included:

• An IIM Ahmedabad study that assessed the quantum and nature of compensation for certain job profiles in the government sector vis-a-vis similar profiles in the private sector.
• A study by the Institute of Defence Studies and Analyses that focused on understanding the components, nature, and quantum of defence pension and defence expenditure.
• A study by IIM Kolkata that assessed the fiscal effects on the government’s finances due to the implementation of the 5th and 6th CPC’s recommendations.

The 7 CPC Pay Commission put forward the following recommendations:

• New Pay matrix: The chief recommendation of the 7tj Pay Commission is a newly designed Pay Matrix. The 7tj Pay Commission recommended abandoning the existing system of Pay Bands and Grade Pay. Upon implementation, the status of a government employee will be ascertained by the level in the Pay Matrix, not by the Grade Pay. The Pay Matrix proposed includes all existing levels and no new levels have been introduced.
• Recommended Minimum Pay Scale For Government Employees: As per the recommendations of the 7th Pay Commission, the minimum pay for a new recruit in an entry-level position would be Rs. 18,000 per month. The minimum salary of a newly recruited Class I officer was also increased to Rs. 56,100 per month (3 times the pay of an entrant at the lowest level).
• Annual Increment: The 7th Central Pay Commission recommended that the annual increment rate be retained at 3% per annum.
• Fitment Factor: The 7tj Pay Commission recommended adopting a fitment factor of 2.57 for all employees for the purpose of revisions to pay and pensions. This fitment factor is to be uniformly applied across levels in the pay matrices.
• Modified assured career progression (MACP): To improve performance, the 7th Pay Commission recommended enhancement of the MACP benchmark from ‘Good’ to ‘Very Good’. It also recommended withholding of annual increments to employees who fail to meet the MACP performance benchmark in the first 20 years of service.
• Gratuity Limit: According to the 7nth Pay Commission recommendations, the gratuity ceiling was to be raised from Rs. 10 Lakhs to Rs. 20 Lakhs. It further recommended that the gratuity ceiling be raised by 25% when DA rises by 50%.
• Revisions in Pension: The 7tj Pay Commission proposed a new pension formula for civil employees, including CAPF personnel and defence personnel who had retired before 1st January 2016.
• Military Service Pay: With regard to the Military Service Pay (MSP), the 7ty Pay Commission recommended hiking MSP from Rs. 1,000, Rs. 2,000, Rs. 4,200, and Rs. 6,000 to Rs. 3,600, Rs. 5,200, Rs. 10,800, and Rs. 15,500, respectively. MSP is payable to all ranks of defence personnel up to and inclusive of Brigadiers and their equivalents.
• Pay Based on Performance: A Performance-Related Pay (PRP) was also recommended by the 7ty Pay Commision. The proposed PRP was to be applicable for all categories of government employees, linking all bonus payments to productivity. PRP will be based on annual appraisal reports, RFD, and other broad guidelines.
• Work-Related Illness and Injury Leave: According to the 7nth Pay Commission recommendations, hospital leave, sick leave, and special disability leave need to be merged into a new work-related illness and injury leave. Under this leave, hospitalised employees will be entitled to their full salary and allowances.
• Hike in Central Government Group Insurance Scheme Contributions: The 7nth Pay Commission recommended a hike in the CGEGIS contributions and insurance amount.
• Medical Benefits: The 7th Central Pay Commission recommended the introduction of a health insurance for central government employees and pensioners. The report also recommended extension of cashless benefit for pensioners living outside the CGHS area.
• Allowances: Out of the 196 existing allowances, the 7th Pay Commission recommended the elimination of 51 allowances and the merger of 37 allowances.
• House Rent Allowance (HRA): The 7ty Pay Commission recommended raising HRA by 27%, 18%, and 9% when DA crosses the 50% mark and by 30%, 20%, and 10% when DA crosses the 100% mark.

The Union Cabinet chaired by Prime Minister Narendra Modi, broadly accepted the 7th Central Pay Commission recommendations. The Pay Commission 7 recommendations came into effect from 1st January 2016 and were implemented from 1st July 2016. This meant arrears of only 6 months as opposed to the implementation of the 5th and 6th Pay Commission recommendations, where central government employees had to wait for 19 months and 32 months, respectively.

The recommendations of the 7 CPC Pay Commission affect the earnings of government employees directly, while non-government employees are indirectly affected due to the impact on the national treasury. Accepting the recommendations of the 7tj Pay Commission increased the government expenditure on pay, allowances, and pension. As per the Pay Commission 7 report, the total financial impact in the FY 2016-2017 was expected to be to the tune of Rs. 1,02,100 Crore. This represented a nearly 23.55% increase from the business as usual scenario. The 7th Central Pay Commission Report summed up these expenses as below:

The 7th Central Pay Commission Report also stated that out of this Rs. 1,02,100 Crore financial impact, Rs, 72,650 Crore will be borne by the Central Budget and Rs. 28,450 Crore will be borne by the Railways Budget.Higher salaries due to the implementation of the 7th Central Pay Commission were also expected to boost consumption and demand for discretionary items, benefiting the gadgets, automobile, and FMCG segments. Economists also expected an increase in savings due to the rise in income and pensions. Also Read: 7th Pay Matrix Table for Central Govt Employees

Implementation of the 7 CPC Pay recommendations were touted to benefit 1 Crore+ government employees - inclusive of over 47 Lakh central government employees and 53 Lakh pensioners. Out of this, 14 Lakh employees and 19 Lakh pensioners belong to the Defence Forces.While the benefits of the Pay Commission 7 are evident from its key recommendations, we have summed up some of the key benefits below:

• The implementation of a simple and transparent Pay Matrix that ensures easy comprehensibility. The new Pay Matrix subsumes the Grade Pay structure, presenting the rationalised pay levels with logical pay progression clearly visible.
• Increased minimum entry-level salary from Rs. 7,000 to Rs. 18,000 in keeping with the inflationary pressures.
• Uniform annual increment of 3% for all government employees ensuring a simple increment process and consistent salary growth.
• Introduction of performance-based pay to foster a merit-based structure and boost productivity.
• Provision for a House Building Advance of Rs. 25 Lakhs as opposed to Rs. 7.5 Lakhs.
• Rise in gratuity ceilings and a revised pension structure to ensure better financial security for retirees.

The 7th Pay Commission’s recommendations were largely accepted by the Government with a few exceptions. The corresponding changes in the pay structure of government employees has helped address inflation concerns and the issues related to the rising cost of living, preserving parity between the public and private sectors.Ready to make the most of your money? Start your tax planning journey now!