What is the Standard Deduction in Income Tax?
The standard deduction is a fixed amount that the government allows you to subtract directly from your gross salary before income tax is calculated. It is a built-in tax relief and does not require any paperwork.
It is governed under Section 19 (previously known as Section 16(ia)) of the Income Tax Act. Before its reintroduction in Budget 2018-19, salaried taxpayers could claim a transport allowance exemption of ₹19,200 and a medical reimbursement exemption of ₹15,000 annually, totaling ₹34,200 in relief. The standard deduction replaced both of these, and over the years, the limit has been raised substantially.
Current limits for FY 2026-27:
| Tax Regime |
Standard Deduction |
|---|
| New Tax Regime |
₹75,000 |
| Old Tax Regime |
₹50,000 |
How Does Standard Deduction Work?
The mechanics of standard deduction are straightforward. Your employer pays you a gross salary. Before your taxable income is calculated, the government lets you subtract ₹75,000 (under the new regime) from that figure, and you pay tax only on what is left.
Here is a quick example: Say your gross salary is ₹13,00,000 under the new tax regime. After the ₹75,000 standard deduction, your net taxable income becomes ₹12,25,000. With the Section 156 rebate covering income up to ₹12,00,000, your actual tax liability drops significantly.
There is nothing to submit, claim separately, or prove to your employer. Your employer factors it in automatically while calculating TDS on your salary.
Eligibility Criteria for Income Tax Standard Deduction?
It is worth noting that not everyone filing an ITR gets to claim this flat reduction. The rules restrict the benefit strictly to specific types of taxpayers.
Salaried Employees
Any individual receiving a salary from an employer qualifies. This covers full-time employees in private companies, government workers, and contractual staff with structured salary arrangements. Both resident Indians and NRIs earning Indian salary income can claim the deduction.
There is no minimum salary threshold. A junior employee earning ₹4 lakh and a senior professional earning ₹40 lakh get the exact same deduction amount. You can also claim it regardless of which tax regime you choose, though the amount differs between the two.
Pensioners
Pensioners are equally eligible, as long as the pension is taxed under the head “Salaries.” This usually covers a superannuation pension received from a former employer. The deduction amount is the same, which is ₹75,000 under the new regime and ₹50,000 under the old regime.
It is important to note that the spouse or dependent who receives a pension after the employee’s death gets a different, smaller deduction, either one-third of the pension or ₹25,000 under the new regime, whichever is less. Their pension is taxed as “Income from Other Sources,” not salary, so the rules differ slightly.
Purpose of Standard Deduction
To understand how the standard deduction simplifies your taxes, let us look at its primary purpose.
- Levels the Playing Field: Business owners could deduct dozens of work-related expenses, but salaried employees could not. This deduction closes that gap.
- Replaces Older Allowances: It consolidates the earlier transport allowance (₹19,200/year) and medical reimbursement (₹15,000/year) into one flat, higher deduction.
- No Documentation Required: Unlike most deductions, you do not need bills, rent receipts, or employer declarations to claim it.
- Reduces the Tax Burden: A flat ₹75,000 off your taxable income means real savings, especially for those in the 20–30% tax brackets.
- Encourages the New Tax Regime: Extending this deduction to the new regime made it far more appealing, which is partly why over 72% of taxpayers have already switched.
Impact of Standard Deduction on Individuals
This single standard deduction in your tax computation does a lot of work for your personal finances. Here is how:
Lower Taxable Income
The most direct impact is on your tax bill. By reducing your taxable income, the standard deduction lowers the amount on which your slab rate applies.
Consider a salaried individual earning ₹10,00,000 per year under the new tax regime. Without the deduction, ₹10,00,000 is taxable. With the ₹75,000 standard deduction, only ₹9,25,000 is taxed. For someone in the 15% slab, that is a saving of ₹11,250 every year.
Simplified Filing
You do not have to organize receipts, track monthly bills, or fill out additional schedules. The deduction is applied automatically by your employer while computing TDS, and it shows up in your Form 16 without any action from you.
During filing, it is already pre-filled in most ITR forms. For millions of salaried taxpayers, this reduction in paperwork is genuinely valuable.
Universal Benefit
The standard deduction does not discriminate based on employer size, salary level, or job title. A first-year employee and a 20-year veteran in the same company claim exactly the same amount.
This flat-rate design is intentional. It ensures that lower-income salaried individuals, who may not have access to sophisticated tax planning tools, benefit just as much as those who do.
Increased Savings
Reduced tax liability means more money stays with you. For someone in the 20% bracket, the ₹75,000 deduction under the new regime translates to ₹15,000 in annual tax savings. That amount could be invested in a SIP, an insurance policy, or a contribution to your emergency fund.
Standard Deduction in New Tax Regime
The new tax regime is now the default for all taxpayers, unless you explicitly opt for the old regime. Budget 2024 made a significant upgrade by raising the standard deduction for salaried employees under the new regime from ₹50,000 to ₹75,000. Union Budget 2026 kept this unchanged but restructured the tax slabs in a way that makes the new regime considerably more rewarding for salaried individuals.
Here is how it stacks up for FY 2026-27 under the new regime:
| Component |
Amount |
|---|
| Basic Exemption Limit |
₹4,00,000 |
| Standard Deduction |
₹75,000 |
| Section 156 Rebate (Section 87A Rebate) |
Up to ₹12,00,000 of taxable income |
| Effective Tax-Free Salary |
₹12,75,000 |
Standard Deduction in Old Tax Regime
Under the old regime, the standard deduction stays at ₹50,000, but you can also claim HRA, Section 123 investments (up to ₹1.5 lakh), home loan interest under Section 24(b), and several other deductions. If you have a home loan running, a substantial portfolio, and an HRA to claim, the old regime may still result in a lower tax liability for you.
Conclusion
The standard deduction is one of the cleanest tax benefits in India’s income tax system. It does not come with conditions, investment requirements, or annual renewals.
At ₹75,000 under the new tax regime, it directly reduces your taxable income from day one of the financial year. If you combine it with the revised slabs and enhanced Section 156 rebate, it pushes the effective tax-free threshold for salaried employees to ₹12.75 lakh.
FAQs on Standard Deduction
1
How much is the standard deduction for salaried employees?
It depends entirely on the tax structure you choose. If you opt for the new tax regime, you receive a flat ₹75,000 deduction. If you decide to stay with the old tax regime to claim other investments like Section 123 or HRA, the deduction remains at ₹50,000.
2
Does the standard deduction replace other deductions like transport or medical allowance?
Yes. The government introduced the standard deduction specifically to absorb and replace the older tax-free transport allowance (which was ₹19,200) and the medical reimbursement allowance (which was ₹15,000). You now get one larger, flat amount instead of claiming those items individually.
3
Can I claim the standard deduction if I choose the new tax regime?
Absolutely. In fact, the new regime actually rewards you for doing so. While the new regime removes most traditional tax deductions (like HRA and Section 123), it retains the standard deduction and increases it to ₹75,000 to lower your overall burden.
4
Is the standard deduction available for pensioners?
Yes. If you receive a pension from your former employer, the income tax department categorizes it as ‘salary’ income. This means you are fully eligible to claim the standard deduction of ₹50,000 (old regime) or ₹75,000 (new regime) against your pension payouts.
5
How does the standard deduction affect my tax liability?
It directly lowers the base amount upon which your tax is calculated. By removing up to ₹75,000 from your gross income right at the start, you pay tax on a smaller part of your gross salary. This immediately reduces your final tax bill, and in many marginal cases, it can bring your total tax liability down to zero if your income is near the rebate threshold.
