Another big update is waiting for central government employees. On February 1, 2025, during the budget presentation, Finance Minister Nirmala Sitharaman revealed a new tax slab. This means that individuals earning up to Rs 12 lakh annually won’t have to pay any income tax.
Additionally, the government led by Prime Minister Narendra Modi has recently approved the 8th Pay Commission, which is expected to significantly boost the salaries of government employees and pensioners. This raises the question of whether the newly announced tax slab will have any effect on the 8th Pay Commission. If it does, what kind of impact can we expect? Let’s dive into the details.
First, let’s look at the implications of the 8th Pay Commission
With the 8th Pay Commission coming into play, government employees could see their salaries rise by as much as 108 percent, benefiting around 1.10 crore central employees and pensioners. Reports suggest that if the fitment factor is adjusted from 1.92 to 2.08, the minimum basic salary could jump from 18,000 to 37,440. If the fitment factor goes up to 2.86, that figure could soar to 51,480.
This will increase the strain on the government’s finances
According to reports, the direct tax exemption introduced in the budget, which allows for no tax on annual income up to 12 lakh, is expected to create a burden of about one lakh crore rupees on the government’s treasury. On top of that, the implementation of the 8th Pay Commission is projected to add another 2 lakh crores to this financial strain.
Impact of New Tax Slab on the 8th Pay Commission
The implementation of any pay commission primarily influences government employees and pensioners. In contrast, alterations to the tax slab have a broader impact, affecting the entire population, including those in government positions, private employment, or self-employment. For instance, if the new tax slab stipulates that income up to Rs 12 lakh is tax-exempt, this provision applies universally.
Now, let’s examine the implications for the 8th Pay Commission. The 8th Pay Commission is set to enhance the salaries and allowances of government employees. If their revised salary remains at or below Rs 12 lakh, they will be exempt from taxation. However, should their earnings exceed Rs 12 lakh, they will be subject to taxation according to the new tax slab.