Revision Of Special Allowance Granted To the Civil Employees Of the Federal Government
Finance Division Office Memorandum No. 1(2)R5/2022-PT-0001 raises the minimum wage/gross salary for eligible Federal Government civil employees from Rs. 37,000 to Rs. 40,700 with effect from 1 July 2026. Employees below the revised threshold are to receive the difference as Special Allowance, subject to the memorandum’s stated conditions.
Overview
Finance Division Office Memorandum No. 1(2)R5/2022-PT-0001 raises the minimum wage/gross salary for eligible Federal Government civil employees from Rs. 37,000 to Rs. 40,700 with effect from 1 July 2026. Employees below the revised threshold are to receive the difference as Special Allowance, subject to the memorandum’s stated conditions.
Key Highlights
- Minimum wage/gross salary increased from Rs. 37,000 to Rs. 40,700
- Effective from 1 July 2026 until further orders
- Difference is payable as Special Allowance where gross salary is below Rs. 40,700
- Covers Federal civil employees, civilians paid from Defence estimates, contingent-paid staff and specified contract employees against BPS civil posts
- Special Allowance is subject to income tax
- Admissible during leave and full LPR except extraordinary leave
- Not counted as emoluments for pension/gratuity or House Rent recovery
- Not admissible during posting/deputation abroad; resumes on repatriation at the stated counterfactual rate
- To be met within 2026-2027 budget allocations; no supplementary grants
Detailed Explanation
The Finance Division has revised the minimum wage/gross salary applicable to covered Federal Government civil employees from Rs. 37,000 to Rs. 40,700, with effect from 1 July 2026 and until further orders. Under the Office Memorandum dated 21 August 2026, an employee whose gross salary is below Rs. 40,700 is to be allowed the difference as Special Allowance. The memorandum also specifies how the allowance is treated during leave, long leave preparatory to retirement (LPR), overseas posting and for pension-related calculations.
Key Highlights of Special Allowance 2026
- The minimum wage/gross salary is enhanced from Rs. 37,000 to Rs. 40,700.
- The increase takes effect from 1 July 2026 and remains applicable until further orders.
- Employees whose gross salary is below Rs. 40,700 are to receive the difference as Special Allowance.
- The stated coverage includes Federal Government civil employees, civilians paid from Defence estimates, contingent-paid staff and specified contract employees against civil posts in Basic Pay Scales.
- The Special Allowance is subject to income tax.
- It is admissible during leave and the entire period of LPR, except extraordinary leave.
- It is excluded from emoluments for calculating pension/gratuity and for recovery of House Rent.
- It is not admissible during posting/deputation abroad, but is admissible after repatriation at the rate and amount that would have applied if the employee had not been posted abroad.
Minimum Wage/Gross Salary Increased to Rs. 40,700
The Finance Division Office Memorandum states that the Federal Government has enhanced the minimum wage/gross salary from Rs. 37,000 to Rs. 40,700. The revised threshold is effective from 1 July 2026 and continues until further orders.
| Particular | Amount / Date |
|---|---|
| Previous minimum wage/gross salary | Rs. 37,000 |
| Revised minimum wage/gross salary | Rs. 40,700 |
| Difference between the two thresholds | Rs. 3,700 |
| Effective date | 1 July 2026 |
| Duration | Until further orders |
Who Is Covered by the Special Allowance?
The memorandum names the following employee groups:
- Civil employees of the Federal Government.
- Civilians paid from Defence estimates.
- Contingent-paid staff.
- Contract employees against civil posts in Basic Pay Scales, where they are employed on standard terms and conditions of contract employment.
The circular does not state that this Federal Government arrangement automatically applies to employees of Provincial Governments or private-sector employers. Employees should check the rules and notifications issued by their own competent government or employer rather than applying this memorandum beyond its stated coverage.
How the Special Allowance Is Worked Out
An employee whose gross salary is less than Rs. 40,700 is to be allowed the difference as Special Allowance. The memorandum does not provide a detailed definition of the salary components to be included when determining gross salary, nor does it set out a separate component-by-component calculation formula.
| Illustrative gross salary | Difference up to Rs. 40,700 |
|---|---|
| Rs. 37,000 | Rs. 3,700 |
| Rs. 38,000 | Rs. 2,700 |
| Rs. 40,000 | Rs. 700 |
| Rs. 40,700 | No difference under the stated threshold test |
These figures illustrate the arithmetic difference only. The Finance Division memorandum does not specify which individual pay and allowance components an office must include when determining an employee’s gross salary. The relevant payroll/accounts office should confirm the applicable gross-salary calculation in an individual case.
Conditions and Treatment of the Special Allowance
1. Income tax
The Special Allowance is subject to income tax. The memorandum does not set a separate tax rate or provide a tax calculation method.
2. Leave and LPR
The allowance is admissible during leave and throughout the entire period of leave preparatory to retirement (LPR). The stated exception is extraordinary leave, during which the allowance is not admissible under this clause.
3. Pension, gratuity and House Rent recovery
The Special Allowance is not to be treated as part of emoluments for the purpose of calculating pension or gratuity. The memorandum also excludes it from the emoluments used for the purpose of recovery of House Rent.
4. Posting or deputation abroad
The allowance is not admissible to employees during the tenure of their posting or deputation abroad.
5. Repatriation from posting or deputation abroad
After repatriation from posting or deputation abroad, the allowance is admissible at the rate and amount that would have been admissible to the employee had the employee not been posted abroad.
Budget Arrangements for 2026–2027
The Finance Division directs that the Special Allowance/increase in minimum wage be accommodated from within the existing budgetary allocation for the year 2026–2027 by the respective Ministries, Divisions and Departments. The memorandum states that no supplementary grants will be provided on this account.
Relationship with the 2026 Basic Pay Scales
This memorandum deals with the minimum wage/gross salary threshold and the Special Allowance payable where an eligible employee’s gross salary is below Rs. 40,700. It does not announce a new Basic Pay Scale table. For the separate 2026 revision of Federal Basic Pay Scales and related allowances, see the Finance Division’s 2026 Basic Pay Scales and Allowances notification summary. The separate 2026 pay-scale clarification should also be read on its own terms.
Frequently Asked Questions
What is the revised minimum wage/gross salary under the memorandum?
The Finance Division raised it from Rs. 37,000 to Rs. 40,700, effective from 1 July 2026 and until further orders.
Who receives the difference as Special Allowance?
Covered employees whose gross salary is less than Rs. 40,700 are to be allowed the difference as Special Allowance, subject to the memorandum’s terms.
Is the Special Allowance taxable?
Yes. The memorandum expressly states that the amount of Special Allowance is subject to income tax.
Does the Special Allowance count towards pension or gratuity?
No. The memorandum says it is not to be treated as part of emoluments for calculating pension or gratuity.
Is the allowance payable during leave and LPR?
It is admissible during leave and the entire period of LPR, except during extraordinary leave.
Is it payable while an employee is posted or deputed abroad?
No. It is not admissible during the tenure of posting or deputation abroad. On repatriation, it is admissible at the rate and amount that would have applied if the employee had not been posted abroad.
Does the memorandum apply to Provincial Government or private-sector employees?
The memorandum states the coverage for Federal Government civil employees and the listed related categories. It does not extend the arrangement to Provincial Government or private-sector employees in its text.
Does the memorandum specify how arrears are to be processed?
The memorandum makes the enhancement effective from 1 July 2026, although it is dated 21 August 2026. It does not set out a separate arrears-processing procedure or payment schedule.
Official Finance Division Office Memorandum
For the authoritative wording, refer to the original Office Memorandum issued by the Ministry of Finance.
Download the Finance Division Office Memorandum dated 21 August 2026 (PDF)