8th Pay Commission: On Sunday, February 1, Finance Minister Nirmala Sitharaman unveiled the Budget for 2026-27. The spotlight was on two main topics in this budget. First up was the 8th Pay Commission, which deals with the salaries of central employees, and second was the 16th Finance Commission that assesses the economic status of the states. The year 2026 holds significance for various reasons.
On one side, government employees were looking forward to a salary increase amidst rising inflation, while on the flip side, state governments were eagerly anticipating their share from the Centre. Let’s find out who received what from the Budget 2026-27.
States will keep getting 41% of central taxes
In the Budget for 2026-27, Finance Minister Nirmala Sitharaman has put to rest any uncertainties regarding the recommendations of the 16th Finance Commission. The government has agreed to the commission’s suggestions, led by Arvind Panagariya, and has decided to maintain the 41 percent share of central taxes for the states.
The 16th Finance Commission was established on December 31, 2023, with former NITI Aayog Vice Chairman Arvind Panagariya, along with economic experts like Annie George Mathew, Manoj Panda, Soumya Kanti Ghosh, and T. Ravi Shankar. The Commission’s Secretary, Ritwik Pandey, presented its comprehensive report to President Draupadi Murmu on November 17, 2025.
No funding shortages for the states
This arrangement will kick in at the start of the next financial year, which is April 1, 2026, and will last for the following five years. This means states won’t face any funding shortages for development initiatives like road building, education, and healthcare. Additionally, a significant grant of Rs 1.4 lakh crore has been set aside for states for the financial year 2026-27. This funding will mainly focus on bolstering local bodies (both urban and rural) and improving disaster management readiness.
Central employees will have to wait further
However, millions of central government employees and pensioners are expected to wait a little longer. According to budget documents, the commission has already been constituted and given 18 months to prepare its final report. However, the budget does not provide any specific date for implementing the recommendations.
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