Ultimate Guide to Standard Deduction in India (FY 2024-25 & AY 2025-26)

Understand Standard Deduction under Income Tax for FY 2024-25 & AY 2025-26. Learn about tax benefits, old vs. new tax regime, Section 16(ia), and how it lowers taxable income. Find year-wise updates and salary deductions for maximum tax savings!

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When it comes to income tax planning, one of the most crucial deductions available to salaried employees and pensioners is the Standard Deduction. It is a fixed deduction from taxable income, reducing the overall tax liability without requiring any proof of expenses.

Why is Standard Deduction Important?

• Simplifies tax filing – No need to submit bills or receipts.
• Reduces taxable income – Helps lower overall tax burden.
• Beneficial for both salaried individuals and pensioners – Ensures tax relief without additional documentation.

Standard Deduction News for FY 2024-25 & AY 2025-26

Latest Update: The standard deduction remains unchanged for the upcoming financial year:

• ₹50,000 under the Old Tax Regime
• ₹75,000 under the New Tax Regime (for individuals earning ₹15.5 lakh and above)

This makes the New Tax Regime more attractive for high-income earners, offering higher deductions and lower tax rates compared to previous years.

Who Benefits from Standard Deduction?

• Salaried Employees: Directly applied while calculating taxable salary income.
• Pensioners: Treated as salary income, allowing them to claim this deduction.

With the increase in taxpayer-friendly policies, understanding how the Standard Deduction works is essential for maximizing tax savings. In the following sections, we will explore everything you need to know, including its history, applicability, and latest tax rules.

What is Standard Deduction in Income Tax?

Standard Deduction Meaning (Simplified Explanation)

Standard Deduction is a fixed tax deduction that salaried employees and pensioners can claim without submitting any bills or proof of expenses. It directly reduces taxable income, lowering the overall tax liability.

Think of it as an automatic tax benefit given to employees and pensioners to simplify tax calculations and provide financial relief.

How Standard Deduction Replaced Transport Allowance & Medical Reimbursement

Before the Union Budget 2018, salaried individuals could claim two separate exemptions:

• Transport Allowance – ₹19,200 per year
• Medical Reimbursement – Up to ₹15,000 per year

Total tax benefit: ₹34,200

In Budget 2018, the government introduced a flat ₹40,000 standard deduction, replacing both these exemptions.
Later, in Budget 2019, this amount was increased to ₹50,000, making it even more beneficial for taxpayers.

Key Benefit: Unlike medical reimbursements (which required bills) and transport allowances (which had limits), standard deduction is automatically applied without any paperwork.

Importance of Standard Deduction for Taxpayers

• Reduces Taxable Income – Helps salaried employees and pensioners save tax.
• Simplifies Tax Filing – No need to maintain records or submit proofs.
• Applies to Everyone Equally – Available for all salaried individuals and pensioners, irrespective of salary levels.
• Encourages More Take-Home Salary – Employees get more in-hand salary as deductions are predefined.

With rising inflation and increasing living costs, the standard deduction plays a crucial role in easing the tax burden for millions of taxpayers across India.

Standard Deduction in India (Year-Wise Updates)

The Standard Deduction has undergone significant changes since its reintroduction in FY 2018-19. Below is a year-wise breakdown of how the deduction amount evolved over the years:

Standard Deduction Amount Over the Years

Financial Year	Standard Deduction Amount	Tax Regime
FY 2018-19	₹40,000	Old Tax Regime
FY 2019-20	₹50,000	Old Tax Regime
FY 2020-21 to FY 2023-24	₹50,000	Old Tax Regime
FY 2024-25	₹50,000 (Old Regime) & ₹75,000 (New Regime)	Both Regimes

Standard Deduction for FY 2018-19 & Changes Over the Years

1. FY 2018-19: Standard Deduction was introduced at ₹40,000, replacing:

• ₹19,200 Transport Allowance
• ₹15,000 Medical Reimbursement

2. FY 2019-20: The deduction was increased to ₹50,000, providing additional tax relief to salaried employees and pensioners.

3. FY 2020-21 to FY 2023-24: No changes were made; the ₹50,000 deduction continued under the Old Tax Regime.

4. FY 2024-25 (Latest Update):

• Old Tax Regime: Standard Deduction remains ₹50,000.
• New Tax Regime: A higher ₹75,000 deduction is available for taxpayers earning ₹15.5 lakh and above.

Key Takeaway: The government maintained ₹50,000 as the base deduction for many years, but the 2023 Budget introduced a higher ₹75,000 deduction for higher-income taxpayers under the New Regime, making it more competitive.

This evolution highlights the government’s effort to simplify taxation and provide relief to taxpayers, ensuring more savings in hand.

Standard Deduction in Old Tax Regime vs. New Tax Regime

The Standard Deduction is a major tax benefit that helps reduce taxable income for salaried employees and pensioners. However, its applicability differs between the Old Tax Regime and the New Tax Regime. Let’s compare:

Standard Deduction in the Old Tax Regime

• Always applicable.
• Fixed deduction of ₹50,000 from taxable salary or pension income.
• Available since FY 2018-19.
• Comes with other tax exemptions and deductions (HRA, 80C, 80D, etc.).

Standard Deduction in the New Tax Regime

• Not available before Budget 2023.
• Introduced in Budget 2023 at ₹50,000 for salaried individuals & pensioners.
• Increased to ₹75,000 in FY 2024-25 (for income of ₹15.5 lakh & above).
• New Tax Regime has lower tax rates but fewer exemptions.

Comparison of Standard Deduction in Both Tax Regimes

Is Standard Deduction Applicable in the New Tax Regime?
Yes, after Budget 2023, the government allowed a ₹50,000 standard deduction under the New Tax Regime, making it more attractive for taxpayers. In FY 2024-25, the deduction was further increased to ₹75,000 for high earners.

Key Takeaway: If you are in the Old Tax Regime, you can always claim ₹50,000. If you switch to the New Tax Regime, you can still claim ₹50,000 (or ₹75,000 if earning ₹15.5L+).

Standard Deduction in Old Tax Regime vs. New Tax Regime

The Standard Deduction is a major tax benefit that helps reduce taxable income for salaried employees and pensioners. However, its applicability differs between the Old Tax Regime and the New Tax Regime. Let’s compare:

Standard Deduction in the Old Tax Regime

• Always applicable.
• Fixed deduction of ₹50,000 from taxable salary or pension income.
• Available since FY 2018-19.
• Comes with other tax exemptions and deductions (HRA, 80C, 80D, etc.).

Standard Deduction in the New Tax Regime

• Not available before Budget 2023.
• Introduced in Budget 2023 at ₹50,000 for salaried individuals & pensioners.
• Increased to ₹75,000 in FY 2024-25 (for income of ₹15.5 lakh & above).
• New Tax Regime has lower tax rates but fewer exemptions.

Comparison of Standard Deduction in Both Tax Regimes

Is Standard Deduction Applicable in the New Tax Regime?
Yes, after Budget 2023, the government allowed a ₹50,000 standard deduction under the New Tax Regime, making it more attractive for taxpayers. In FY 2024-25, the deduction was further increased to ₹75,000 for high earners.

Key Takeaway: If you are in the Old Tax Regime, you can always claim ₹50,000. If you switch to the New Tax Regime, you can still claim ₹50,000 (or ₹75,000 if earning ₹15.5L+).