Rs 75,000 under new regime. Rs 50,000 under old regime. No bills, no proof, no investment needed.
That is your standard deduction for FY 2025-26 (AY 2026-27) — a flat deduction from gross salary under Section 16(ia) of the Income Tax Act. Every salaried employee and pensioner gets it automatically. But the fine print has traps that trip up lakhs of taxpayers every year.
Standard Deduction Amounts at a Glance
| Category | New Regime (Section 115BAC) | Old Regime |
|---|---|---|
| Salaried employees | Rs 75,000 | Rs 50,000 |
| Pensioners (own pension) | Rs 75,000 | Rs 50,000 |
| Family pensioners | Rs 25,000 (Section 57(iia), not Section 16) | Rs 15,000 (Section 57(iia)) |
The deduction is the lower of the limit above or your actual gross salary/pension. If your annual salary is Rs 60,000, your standard deduction is Rs 60,000 — not Rs 75,000.
How Standard Deduction Works — Section 16(ia) Mechanics
Standard deduction sits in Section 16 of the Income Tax Act, which allows three deductions from salary income:
| Deduction | Section | New Regime | Old Regime |
|---|---|---|---|
| Standard deduction | 16(ia) | Rs 75,000 | Rs 50,000 |
| Entertainment allowance | 16(ii) | Not available | Only govt employees — Rs 5,000 or 1/5th of salary |
| Professional tax | 16(iii) | Not available | Full amount (max Rs 2,500/year) |
Under the new regime, standard deduction is the only surviving Section 16 deduction. Entertainment allowance and professional tax deductions are blocked.
What “gross salary” means for standard deduction
Standard deduction is applied against gross salary — the aggregate of:
- Basic pay + dearness allowance
- All taxable allowances (HRA, special allowance, city compensatory allowance)
- Perquisites (company car, accommodation, ESOPs)
- Profit in lieu of salary (bonuses, commissions)
It is not limited to basic pay alone.
The Complete History: 1974 to 2026
| Year | Event | Amount |
|---|---|---|
| 1974 | Standard deduction introduced | Variable formula |
| AY 2005-06 | Last year before abolition | Rs 30,000 or 40% of salary (up to Rs 5L); Rs 20,000 (above Rs 5L) |
| 2006 | Abolished by FM P. Chidambaram | — |
| 2006–2017 | 13-year gap — no standard deduction | — |
| Budget 2018 | Reintroduced at Rs 40,000 | Replaced transport allowance (Rs 19,200) + medical reimbursement (Rs 15,000) |
| Budget 2019 | Increased | Rs 50,000 |
| Budget 2020 | New tax regime introduced | Rs 50,000 (old regime only — NOT available in new regime) |
| Budget 2023 | Extended to new regime | Rs 50,000 (both regimes) |
| Budget 2024 | Increased under new regime only | Rs 75,000 (new) / Rs 50,000 (old) |
| Budget 2025 | No change | Rs 75,000 / Rs 50,000 |
| Budget 2026 | No change | Rs 75,000 / Rs 50,000 |
When standard deduction was reintroduced in 2018, it replaced Rs 34,200 of existing exemptions (Rs 19,200 transport allowance + Rs 15,000 medical reimbursement). The net gain was only Rs 5,800 — not the Rs 40,000 the headlines suggested.
Actual Tax Saved from Standard Deduction
New Regime (Rs 75,000 Standard Deduction)
| Gross Salary | Taxable After SD | Tax Slab Hit | Tax Saved by SD | Tax Saved Including Cess |
|---|---|---|---|---|
| Rs 6,00,000 | Rs 5,25,000 | 5% | Rs 3,750 | Rs 3,900 |
| Rs 8,00,000 | Rs 7,25,000 | 10% | Rs 7,500 | Rs 7,800 |
| Rs 10,00,000 | Rs 9,25,000 | 10-15% | Rs 11,250 | Rs 11,700 |
| Rs 12,75,000 | Rs 12,00,000 | 87A rebate | Rs 60,000 | Rs 62,400 (entire tax wiped) |
| Rs 15,00,000 | Rs 14,25,000 | 20% | Rs 15,000 | Rs 15,600 |
| Rs 20,00,000 | Rs 19,25,000 | 25% | Rs 18,750 | Rs 19,500 |
| Rs 30,00,000 | Rs 29,25,000 | 30% | Rs 22,500 | Rs 23,400 |
| Rs 50,00,000+ | — | 30% | Rs 22,500 | Rs 23,400 (maximum) |
The maximum tax saved from standard deduction is Rs 23,400 per year (30% of Rs 75,000 + 4% cess). For salaried employees earning up to Rs 12.75 lakh, the savings are much larger because standard deduction brings taxable income within the Section 87A rebate threshold.
Old Regime (Rs 50,000 Standard Deduction)
| Gross Salary | Tax Slab Hit | Tax Saved by SD Including Cess |
|---|---|---|
| Rs 5,00,000 | 5% | Rs 2,600 |
| Rs 10,00,000 | 20% | Rs 10,400 |
| Rs 15,00,000 | 30% | Rs 15,600 |
| Rs 20,00,000+ | 30% | Rs 15,600 (maximum) |
Old regime maximum saving: Rs 15,600. New regime maximum saving: Rs 23,400. The new regime’s higher standard deduction saves Rs 7,800 more per year at the top slab.
The Section 16(ia) Drafting Bug — AY 2026-27
This is the issue almost nobody covers.
Budget 2024’s Finance (No. 2) Act amended Section 16(ia) with a proviso that grants the Rs 75,000 standard deduction specifically when income is computed under Section 115BAC(1A)(ii).
Budget 2025 changed the new regime tax slabs. From AY 2026-27, the applicable new regime rates shifted to clause (iii) of Section 115BAC(1A).
The proviso in Section 16(ia) does not reference clause (iii).
Technically, this means the enhanced Rs 75,000 standard deduction may not legally apply for AY 2026-27 — it would revert to Rs 50,000 under both regimes.
In practice: employers are applying Rs 75,000 in TDS calculations, and the ITR portal pre-fills Rs 75,000 for new regime filers. CBDT is expected to issue a corrigendum or the Income Tax Act 2025 (effective April 2026) resolves this through renumbered Section 202. But the gap exists in the law as written.
If you are filing a return for AY 2026-27 and want to be technically safe, the Rs 75,000 deduction is supported by the intent of the legislature and the executive’s application of it. No assessment officer is likely to challenge it.
Who Gets Standard Deduction and Who Does Not
Eligible
| Category | Standard Deduction | Under Which Section |
|---|---|---|
| Salaried employees (full-time) | Rs 75,000 (new) / Rs 50,000 (old) | Section 16(ia) |
| Salaried employees (part-time) | Same — no pro-rata reduction | Section 16(ia) |
| Contract workers on Form 16 (TDS under Section 192) | Rs 75,000 / Rs 50,000 | Section 16(ia) |
| Pensioners (own pension from former employer) | Rs 75,000 / Rs 50,000 | Section 16(ia) |
| Central/state government employees | Rs 75,000 / Rs 50,000 | Section 16(ia) |
| Employees with multiple jobs | Rs 75,000 / Rs 50,000 total (not per employer) | Section 16(ia) |
NOT Eligible
| Category | Why Not | Alternative Deduction |
|---|---|---|
| Freelancers / self-employed | Income under business/profession head, not salary | Business expenses under Section 28-44 |
| Contract workers on Form 16A (TDS under Section 194J) | Professional fees, not salary | 44ADA presumptive deduction (50% of receipts) |
| Company directors — sitting fees only | Income from Other Sources | None specific |
| Family pensioners | Income from Other Sources | Section 57(iia): Rs 25,000 (new) / Rs 15,000 (old) |
| HUFs (Hindu Undivided Families) | No salary income head for HUF | Depends on income type |
| Income from house property or capital gains | Different income heads | Section 24 (property), Section 54/54F (capital gains) |
The Hybrid Case: Salary + Freelancing
If you earn both salary and freelancing income, you can claim standard deduction only on the salary portion. The freelancing income falls under business/profession — no standard deduction there. You must file ITR-3 (not ITR-1) to declare both income types.
Example: Rs 10L salary + Rs 5L freelancing under 44ADA.
- Standard deduction: Rs 75,000 on Rs 10L salary = Rs 9.25L salary income
- Freelancing: 50% of Rs 5L = Rs 2.5L presumptive income
- Total taxable: Rs 11.75L (before other deductions)
Standard Deduction for Pensioners vs Family Pensioners
This is where most confusion lies. The difference is not just the amount — the deduction comes from entirely different sections of the Act.
| Parameter | Regular Pensioner | Family Pensioner |
|---|---|---|
| Who receives it | Retired employee | Spouse/child/dependent after employee’s death |
| Taxed under | Income from Salaries | Income from Other Sources |
| Deduction section | Section 16(ia) | Section 57(iia) |
| New regime amount | Rs 75,000 | Rs 25,000 (or 1/3rd of pension, whichever is lower) |
| Old regime amount | Rs 50,000 | Rs 15,000 (or 1/3rd of pension, whichever is lower) |
| Standard deduction? | Yes | No — it is a separate deduction, not “standard deduction” |
A retired government employee receiving Rs 60,000/month pension gets Rs 75,000 standard deduction. When they pass away, their spouse receiving the same Rs 60,000/month as family pension gets only Rs 25,000 deduction — a Rs 50,000 gap, costing approximately Rs 10,000-15,000 extra tax annually. Read our detailed breakdown at family pension vs regular pension tax.
Standard Deduction for NRIs
NRIs are eligible for the same standard deduction amounts on salary earned for services rendered in India:
- New regime: Rs 75,000
- Old regime: Rs 50,000
But the effective benefit is lower for NRIs because:
- Section 87A rebate is not available to NRIs — so the Rs 12.75L zero-tax ceiling does not apply
- A resident earning Rs 12.75L pays Rs 0 tax. An NRI earning Rs 12.75L pays approximately Rs 60,000 tax even after standard deduction
- NRIs working remotely from abroad for an Indian company where salary accrues in India — standard deduction applies if the income is taxable under the Salaries head in India
How Standard Deduction Interacts with Other Deductions
Under New Regime — What Stacks with Standard Deduction
| Deduction | Section | Limit | Status |
|---|---|---|---|
| Standard deduction | 16(ia) | Rs 75,000 | Available |
| Employer NPS contribution | 80CCD(2) | 14% of basic + DA | Available |
| Employer EPF contribution | — | 12% of basic (exempt up to Rs 7.5L combined) | Available |
| Home loan interest — let-out property | 24(b) | No limit against rental income | Available |
| 80C (PPF, ELSS, LIC, EPF) | 80C | Rs 1.5 lakh | NOT available |
| 80D (health insurance) | 80D | Rs 25K-1L | NOT available |
| HRA exemption | 10(13A) | Varies | NOT available |
| NPS self-contribution | 80CCD(1B) | Rs 50,000 | NOT available |
| Professional tax | 16(iii) | Rs 2,500 | NOT available |
Under the new regime, the only meaningful tax optimization levers are standard deduction + employer NPS. See our detailed guide on how to save tax under the new regime.
Under Old Regime — Everything Stacks
Standard deduction of Rs 50,000 stacks with all Chapter VI-A deductions (80C, 80D, 80E, 80CCD, 80G), HRA exemption, LTA, professional tax, and entertainment allowance. The trade-off: the standard deduction itself is Rs 25,000 lower. Our old vs new regime comparison shows the exact breakeven at every salary level.
Common Mistakes to Avoid
1. Claiming Rs 75,000 under old regime
Old regime standard deduction is Rs 50,000 — not Rs 75,000. The enhanced amount applies only to the new regime. Filing Rs 75,000 under old regime will trigger a mismatch notice.
2. Double-claiming after job switch
Both employers apply full standard deduction in TDS calculations. During ITR filing, you must consolidate and claim only ONE deduction. See our full guide on standard deduction with multiple employers.
3. Family pensioners claiming Rs 75,000
Family pension is not salary. The deduction is under Section 57(iia), limited to Rs 25,000 (new) or Rs 15,000 (old). Claiming Rs 75,000 will be corrected during processing.
4. Contract workers (194J) claiming standard deduction
If your TDS is deducted under Section 194J (professional/technical services) with Form 16A, you are not eligible. Standard deduction requires TDS under Section 192 (salary) with Form 16.
5. Not claiming standard deduction at all
The ITR-1 portal pre-fills standard deduction. But if you are editing XML or using third-party filing software, you might miss it. Review your computation sheet before filing. If you already filed without it, submit a revised return before the deadline (December 31 of the assessment year).
6. Confusing standard deduction with 80C limit
Standard deduction (Rs 75,000) and Section 80C (Rs 1.5 lakh) are completely separate. They apply at different stages of the tax computation and have different eligibility rules. Under the old regime, you get both. Under the new regime, you get only standard deduction.
Standard Deduction in Form 16 and ITR Filing
Form 16 Part B
Your employer reflects standard deduction in Part B of Form 16 under “Deductions under Section 16.” From FY 2024-25 onwards, Form 16 shows Rs 75,000 for employees who opted for the new regime.
Common Form 16 errors:
- Previous employer showing Rs 75,000 AND current employer showing Rs 75,000 — both are correct individually, but you claim only one during ITR filing
- Employer still showing Rs 50,000 despite employee being in new regime — flag this with payroll/HR
ITR Filing
- ITR-1: Standard deduction is auto-populated. Verify the amount matches your regime.
- ITR-2/3/4: Claim under “Income from Salaries” → “Allowances to the extent exempt under Section 10” → then Section 16 deductions.
- The e-filing portal will flag if you claim Rs 75,000 under old regime or claim standard deduction against non-salary income.
India vs the World: Standard Deduction Comparison
| Country | Standard/Personal Deduction | Equivalent in INR (approx) |
|---|---|---|
| India (new regime) | Rs 75,000 | Rs 75,000 |
| India (old regime) | Rs 50,000 | Rs 50,000 |
| USA | $14,600 (single) / $29,200 (married) | Rs 12.3L / Rs 24.6L |
| UK | Personal Allowance £12,570 | Rs 13.5L |
| Germany | Employee lump-sum €1,230 | Rs 1.16L |
| Australia | No standard deduction | — (itemized only) |
India’s standard deduction is among the lowest in absolute terms. Even adjusting for PPP (purchasing power parity), it covers roughly 1-2 months of urban living expenses — compared to 3-4 months in the US and UK.
What to Expect in Future Budgets
Despite consistent demand from taxpayers and tax professionals, standard deduction has been unchanged for two consecutive budgets (2025 and 2026). The government has chosen to provide relief through slab changes and rebate expansion rather than increasing the standard deduction.
Likely trajectory:
- The Income Tax Act 2025 (effective April 2026) renumbers Section 115BAC to Section 202 — resolving the drafting bug without needing a separate corrigendum
- Any increase to standard deduction would likely come only in the new regime, widening the gap with old regime further
- The next realistic increase target is Rs 1,00,000 — but this depends on fiscal space and the government’s stated goal of simplifying the tax code
Related Reading
- Zero tax up to Rs 12.75 lakh — the exact salary structure
- Old vs new regime — which saves more at your salary?
- How to save tax under the new regime
- Standard deduction with multiple employers / job switch
- Family pension vs regular pension tax
- Income tax slabs FY 2026-27
- ITR filing guide — forms, AIS, and common mistakes