8th Pay Commission Update: Central employees are eagerly awaiting the recommendations of the Eighth Pay Commission. Many experts estimate that the Pay Commission may submit its recommendations to the government by the second half of 2027. It is believed that the recommendations of the Pay Commission may become effective from January 1, 2026. If this happens, central employees are expected to receive arrears of 18 to 24 months. Considering the situation of receiving a huge lump sum amount as arrears, many questions are running in the minds of central employees. The question is whether receiving two years’ arrears in a single financial year will increase the tax burden?
How much arrears can you get?
The calculation of how much central government employees will receive as arrears for approximately two years is based entirely on the fitment formula. The fitment factor is the multiplier used to revise an employee’s current basic salary. Employee organizations have demanded a fitment factor ranging from 1.92 to 3.83. The higher the fitment factor, the greater the salary increase and arrears.
Will the tax increase after receiving arrears?
According to experts, salary arrears received under the 8th Pay Commission are generally taxable in the year they are received. The relief under Section 89(1) is intended to ensure that employees don’t have to pay higher taxes simply because the salary arrears are received in a year other than the year they originally belonged to.
According to experts, the old tax regime may be more beneficial for employees who have significant deductions such as Section 80C, 80D, NPS, HRA, or home loans. However, the new tax regime may be better for employees with fewer deductions. The best approach is to calculate tax under both systems for the year the money is received and assess the net tax liability after the relief under Section 89(1).
It should be noted that the Eighth Pay Commission, formed in 2025, is in action this year. The Pay Commission launched its website in February this year. Through this website, various suggestions have been sought from central employees, employee organizations, and stakeholders. Additionally, the Pay Commission is holding meetings with employee organizations in various cities across the country.