7th Pay Commission - Overview & Highlights

In this article, we will know more about pay commission and the key takeaways from the 7th pay commission.

Latest Update on 7th Pay Commission

1. In a move that will benefit over 1.1 crore central government employees and pensioners, the Centre has hiked the Dearness Allowance by 3 per cent to 12 per cent. The previous DA hike was in August last year when the government had increased it to 9 per cent from 7 per cent.

2. Since the hike comes into effect retrospectively from January 1, the employees will also get arrear for the month of January. Now, the central government employees and pensioner will get Dearness Allowances at the rate of 12 per cent.

3. In a decision that will benefit thousands of academicians, Bihar CM Nitish Kumar has announced to give 7th pay commission salaries to madrassa teachers of the state.

4. The Ministry of Railways has also decided to constitute a Committee for the inclusion of fresh categories within the ambit of Risk and Hardship Allowance. The main function of the committee will be ‘To holistically examine the inclusion of fresh categories within the ambit of Risk and Hardship Allowance introduced by 7th CPC’.

5. To bring the uniformity in the retirement age, the ministry will be increasing the retirement age for the constable to commandant (senior superintendent of police) to 60 years from the present 57 years.

What is Pay Commission?

Pay Commission is an administrative system or mechanism appointed by Government of India to examine, review and recommend desirable and feasible changes to salary and its structure (including pay, allowance, bonus and other facilities / benefits in cash or kind) of Government employees of various departments, agencies and services in respect of following categories of employees:

• Central Government employees—industrial and non-industrial
• Personnel belonging to the All India Services
• Personnel of the Union Territories
• Officers and employees of the Indian Audit and Accounts Department
• Members of the regulatory bodies (excluding the RBI) set up under the Acts of Parliament
• Officers and employees of the Supreme Court
• Personnel belonging to the Defence Forces

Every pay commission, in order to make its recommendations, analyzes various aspects including the economic condition of the country, financial resources of the government, likely impact on finances of state Governments, comparison with the public sector, private sector and state government pay structure, best global practices and their adaptability and relevance to Indian conditions etc.

Pay Commission is headquartered in Delhi. Pay Commission is provided with 18 months of time to submit its recommendation via report from the date of its constitution. Pay Commission may consider sending interim reports on any of the matters as and when recommendations are finalised. Government of India may either accept of reject recommendations made by Pay Commission. State Government’s usually adopt the recommendations with certain modifications.

Pay Commission is headed by a Chairman and comprises of members who are senior officials from various fields.   Till date since India’s Independence, seven pay commissions (7th being the latest one) have been set up to review and recommend changes to emolument structures of civil and defence personnel of Government. Pay Commissions are generally set up every 10 years.

Earlier Six Pay Commissions in brief

7th Pay Commission

Seventh Pay Commission was set up by The Manmohan Singh led UPA Government on 28 February 2014 under the chairmanship of Justice Ashok Kumar Mathur. Other members of 7th pay commission are Shri Vivek Rane (IAS), Dr Rathin Roy (economist, Director NIPFP) and Smt Meena Agarwal (administrative expert) as Secretary. 7th Pay Commission submitted its report on 19 November 2015 and the recommendations were to take effect from 1 January 2016.

Approach followed by the panel of the Seventh Pay Commission

• As per the panel while finalizing the levels of salaries, allowances and other perquisites of compensation structure, holistic approach has been followed. Panel also commissioned three studies by expert bodies towards this end among other research:

a) Study by IIM, Ahmedabad to understand the nature and quantum of total compensation of select job profiles in the government sector vis-à-vis similarly placed profiles in the CPSUs and the private sector 
b) Study by Institute of Defence Studies and Analyses on nature, quantum and components of defence expenditure and defence pension; 
c) Study by IIM, Kolkata on fiscal implications of implementation of the V and VI CPC on the finances of the Union and State Governments.

• As per the panel report, the new pay structure has been laid out by and large broadly as an open ended, layered matrix, for civilians as well as for the armed forces personnel. It has been kept in view that a person should not stagnate but should have fair opportunity to progress by dint of merit and secure better emoluments so that frustration does not set in.
• Target was to match merit with good compensation. While increase in pay structure may not be able to keep pace with market forces, it was ensured that it is not so unattractive that the right talent is not attracted to Government services

Key Highlights of the Seventh Pay Commission

• Minimum pay: Minimum pay at entry level is increased from Rs 7,000 to Rs 18,000 per month. For a newly recruited Class I Officer, the minimum salary is now Rs 56,100 per month.
• Maximum pay: Maximum pay the the level of secretariat/equivalent is increased to Rs 2,25,000 per month for Apex Scale and Rs 2,50,000 per month for Cabinet Secretary and others presently at the same pay level
• Annual increment: The rate of annual increment is retained at 3%
• New Structure: Present system of pay bands and grade pay has been dispensed with and a new pay matrix has been designed. Grade Pay has been subsumed in the pay matrix. The status of the employee, hitherto determined by grade pay, will now be determined by the level in the pay matrix.
• Fitment factor: A fitment factor of 2.57 is being proposed to be applied uniformly for all employees.
• Military Service Pay: Unlike earlier where Military Service Pay (MSP) was payable to all ranks upto and inclusive of Brigadiers and their equivalents will now be admissible only to Defence forces personnel. MSP is a compensation for military service and it is recommended to enhance MSP for various categories
• Modified Assured Career Progression (MACP): Performance benchmarks for MACP is set at ‘very good’ and also proposed that no annual increment to employees who do not meet the benchmark either for MACP or for a regular promotion in the first 20 years of their service
• Additional benefit to Short Service Commissioned Officers
• Cadre review: Systemic change in the process of Cadre Review for Group A officers recommended
• Allowance: The Commission has recommended abolishing 52 allowances altogether. Another 36 allowances have been abolished as separate identities, but subsumed either in an existing allowance or in newly proposed allowances. It was recommended to increase the House Rent Allowance (HRA) as there is an increase in the basic pay and further increase based on change in DA
• Advance: Non-interest bearing advance and other interest bearing advances except Personal computer advance and House Building Advance (HBA) is abolished and HBA ceiling revised to Rs 25 lakhs from Rs 7.5 lakhs
• Central Government Employee Group Insurance Scheme (CGEGIS): Rates of contribution and insurance coverage under CGEGIS
• Medical facility: Introduction of a Health Insurance Scheme for Central Government employees and pensioners, covering postal pensioners under CGHS and merging of postal dispensaries with CGHS
• Pension: Revised pension formulation for civil employees including Central Armed Police Forces (CAPF) personnel and defence personnel retired before 1 January 2016
• Gratuity: Ceiling of gratuity enhanced from Rs 10 lakhs to Rs 20 lakhs. The ceiling on gratuity may be raised by 25% when DA rises by 50%
• New Pension System (NPS): Pursuant to receiving many grievances relating to NPS, recommended a number of steps to improve the functioning of NPS and also establishment of a strong grievance redressal mechanism.
• Pay based on performance: Introduction of the Performance Related Pay (PRP) which will subsume the existing bonus scheme for all categories of Central Government employees, based on quality Results Framework Documents, reformed Annual Performance Appraisal Reports and some other broad Guidelines was recommended.
• Disability pension for armed forces: Slab based system for disability pension regime is recommended to existing percentile based disability pension regime

Government implemented the recommendations of the 7th Pay Commission including those affecting the armed forces with minor modifications on 5 September 2016. For eg: Increase in the contribution to CGEGIS was not accepted, however, cabinet has asked the ministry to work out a customized group insurance scheme for Central Government Employees with low premium and high risk cover.

Government increased dearness allowance of Central Government by 2% on 7 March 2018 in accordance with the accepted formula based on the recommendation of 7th Pay Commission. There has been expectations that the Government will hike the salary and fitment factor beyond 7th Pay Commission’s recommendation. Employees are demanding hike in fitment factor to 3 times as against recommended 2.57 times which will increase the minimum basic pay to Rs 21,000 from recommended Rs 18,000.

Disability pension for armed forces

A circular issued on 24 June 2019 said that the disability pension of all armed forces, irrespective of the rank, will continue to be exempt from income tax. The exemption is valid for those who are listed invalid to continue their naval, military, or air force service due to bodily injury caused/aggravated during the service. It is invalid for those who have retired on superannuation. You must know that the entire disability pension amount, including the service element and disability element, will be exempt from income tax.

There have been several oppositions to this move of the government as there are many army personnel who have been continuing the duty even after disablement. Such personnel are declared to be not eligible for the tax exemption.

However, the army has acknowledged the government’s decision of taxing disability pension of personnel who are in the line of duty. The army has tweeted on its official channel that the compensation given to the disabled forces has been misused seeking aid for even lifestyle diseases.

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