Federal Government Revises Special Allowance 2026: Minimum Gross Salary Increased to Rs. 40,700

The Federal Government of Pakistan has revised the Special Allowance for eligible federal government employees by increasing the minimum gross salary from Rs. 37,000 to Rs. 40,700 per month.

According to an Office Memorandum issued by the Ministry of Finance on 21 August 2026, the revised amount will take effect from 1 July 2026 and will remain applicable until further orders. Federal employees whose gross salary is below Rs. 40,700 will receive the difference in the form of a Special Allowance.

The decision is particularly important for lower-paid federal employees because it establishes a revised minimum level of gross monthly salary for workers covered by the notification.

Special Allowance 2026 at a Glance

The notification is also available through the Ministry of Finance’s official regulations section.

Who Will Receive the Special Allowance?

The revised arrangement applies to eligible civil employees of the Federal Government.

The Finance Division has also included civilians paid from Defence estimates, contingent-paid staff and contract employees working against civil posts in the Basic Pay Scales under standard terms and conditions of contract employment.

However, the important point is that the Special Allowance does not mean every employee will automatically receive an additional Rs. 3,700.

Instead, the allowance is intended to bring an eligible employee’s gross salary up to the revised minimum of Rs. 40,700.

For example, if an employee’s applicable gross salary is Rs. 39,000, the difference would be Rs. 1,700. If the applicable gross salary is Rs. 38,000, the difference would be Rs. 2,700.

Employees already receiving Rs. 40,700 or more would not need this particular difference to reach the revised minimum threshold.

Special Allowance Effective From 1 July 2026

Although the Office Memorandum was issued on 21 August 2026, the revised rate has been made effective from 1 July 2026.

This means the decision has retrospective effect from the beginning of July.

The Finance Division’s memorandum specifically states that the revised minimum wage/gross salary of Rs. 40,700 will continue until further orders.

Employees should check their salary slips and departmental calculations to determine how the revised allowance has been incorporated into their pay.

Is the Special Allowance Subject to Income Tax?

Yes.

According to the official Office Memorandum, the amount paid as Special Allowance will be subject to income tax.

Therefore, the amount reflected in an employee’s gross salary and the amount ultimately received after deductions may not always be identical.

Actual tax deductions can depend on the employee’s taxable income and applicable tax rules.

Special Allowance During Leave and LPR

The Finance Division has clarified that the Special Allowance will generally remain admissible during leave.

It will also be admissible throughout the period of Leave Preparatory to Retirement (LPR).

There is, however, an exception: the allowance will not be admissible during extraordinary leave.

This distinction is important for employees planning long-term leave or approaching retirement.

Will the Allowance Increase Pension or Gratuity?

No.

The notification clearly states that the Special Allowance will not be treated as part of emoluments for calculating pension or gratuity.

It will also not form part of emoluments for the recovery of house rent.

In simple terms, the Special Allowance can increase the employee’s eligible current gross salary, but it does not automatically increase pensionable emoluments.

Employees nearing retirement should therefore avoid treating this allowance as an addition to their pensionable pay unless subsequent official instructions provide otherwise.

What Happens During Posting or Deputation Abroad?

Federal government employees serving on posting or deputation abroad will not receive this Special Allowance during the period of their foreign posting.

Once they return to Pakistan, the allowance can again become admissible at the rate and amount they would have received if they had not been posted abroad.

This provision ensures that eligibility can resume following repatriation, subject to the applicable government rules.

How Will the Government Finance the Increase?

The Finance Division has instructed federal ministries, divisions and departments to accommodate the expenditure from their existing budgetary allocations for the financial year 2026-27.

The Office Memorandum also states that supplementary grants will not be provided specifically for this increase.

Therefore, the relevant departments will have to manage the additional Special Allowance expenditure within their approved budgets.

Difference Between Rs. 37,000 and Rs. 40,700

The increase from Rs. 37,000 to Rs. 40,700 represents a difference of:

Rs. 40,700 − Rs. 37,000 = Rs. 3,700

This is a 10% increase over the previous Rs. 37,000 threshold.

However, Rs. 3,700 should not automatically be described as a fixed allowance for every federal employee. The notification states that employees earning below the revised threshold will receive the difference required to bring their gross salary up to Rs. 40,700.

That distinction is important when reporting the decision.

Why This Notification Matters for Federal Employees

For lower-paid government employees, even a relatively small adjustment in monthly income can have a meaningful impact on household expenses.

The revised minimum gross salary provides additional financial support to employees whose salary would otherwise remain below Rs. 40,700.

At the same time, employees should understand that the allowance comes with specific conditions relating to taxation, leave, pension calculations and foreign postings.

The best way to determine an individual’s exact entitlement is to review the official notification together with the employee’s salary record or contact the relevant accounts or administration office.

Final Words

The Ministry of Finance’s Special Allowance notification for 2026 has officially revised the minimum gross salary for covered federal government employees from Rs. 37,000 to Rs. 40,700, with effect from 1 July 2026.

Employees receiving less than the revised threshold may be paid the difference as Special Allowance, subject to the conditions specified by the Finance Division.

Because individual salary calculations can vary, employees should confirm their entitlement from their respective department, DDO/accounts office or the Accountant General’s office rather than relying solely on social-media posts.

For verification, readers can consult the Ministry of Finance directly:

Official Ministry of Finance Circulars Page

Official Special Allowance 2026 Office Memorandum PDF 

ThankS to Mr Ahsan