Wondering how the standard deduction in new tax regime impacts your taxes? Get the latest details for FY 2025-26, compare tax regimes, and use our Income Tax Calculator to find out which option saves you more. Read now for expert insights!
When filing income tax returns, one of the biggest decisions taxpayers face is choosing between the old tax regime and the new tax regime. Introduced in Budget 2020, the new tax regime aims to simplify tax calculations by offering lower tax rates but eliminating most deductions and exemptions. In contrast, the old tax regime allows taxpayers to claim various tax-saving deductions, such as HRA, 80C, 80D, and standard deduction, leading to potential tax savings.
A key concern for many salaried individuals and pensioners is whether they can still benefit from the standard deduction in new tax regime. The standard deduction is a fixed reduction in taxable income, helping taxpayers lower their tax liability without the need to provide investment proofs. It was previously available only under the old tax regime, but significant changes in recent budgets have now made it applicable under the new tax regime as well.
Latest Update for Financial Year 2025-26 (Assessment Year 2026-27)
For the FY 2025-26, the government has retained the standard deduction in new tax regime at ₹50,000 for salaried individuals and pensioners. This means that taxpayers opting for the new regime can still reduce their taxable income by ₹50,000, making it more attractive for those who do not claim multiple other deductions.
In the following sections, we will explore how the standard deduction in new tax regime impacts tax calculations, eligibility, and whether the new regime is beneficial compared to the old one.
What is the Standard Deduction in the New Tax Regime?
The standard deduction is a fixed reduction in taxable income that salaried employees and pensioners can claim without needing to submit any investment proofs or bills. It is a straightforward way to lower the taxable salary, thereby reducing the total income tax liability.
Purpose of Standard Deduction
The primary objective of the standard deduction in new tax regime is to offer relief to taxpayers by allowing a flat deduction of ₹50,000 from their total income. This helps in:
- Reducing taxable income, leading to lower tax outgo.
- Simplifying tax filing, as no documentation is required.
- Providing uniform tax relief to all salaried individuals and pensioners.
Standard Deduction: Old vs. New Tax Regime
Initially, the standard deduction was only available under the old tax regime, which also allowed multiple other deductions such as HRA, 80C, 80D, and LTA. However, to make the new tax regime more appealing, the government extended the ₹50,000 standard deduction to it as well.
| Tax Regime | Standard Deduction Allowed? | Other Deductions Available? |
|---|---|---|
| Old Tax Regime | Yes (₹50,000) | Yes (80C, HRA, LTA, 80D, etc.) |
| New Tax Regime | Yes (₹50,000) | No (Most exemptions removed) |
Key Difference:
- Under the old tax regime, taxpayers could claim multiple deductions, including standard deduction.
- Under the new tax regime, most deductions were removed, but standard deduction of ₹50,000 remains available for salaried employees and pensioners.
Thus, while the standard deduction in the new tax regime provides some relief, taxpayers need to evaluate whether the absence of other exemptions makes the new regime beneficial for them.
Standard Deduction Amount for FY 2025-26 (AY 2026-27)
For the financial year 2025-26 (assessment year 2026-27), the standard deduction in new tax regime remains unchanged at ₹50,000 for both salaried employees and pensioners. This deduction applies uniformly, reducing the taxable income for eligible individuals, thereby lowering their overall tax liability.
Current Standard Deduction Limits
As per the latest tax provisions, the standard deduction is available under both tax regimes:
| Category | Old Tax Regime | New Tax Regime |
|---|---|---|
| Salaried Employees | ₹50,000 | ₹50,000 |
| Pensioners | ₹50,000 | ₹50,000 |
Key Highlights:
- Standard deduction in the new tax regime remains the same as in the old tax regime.
- No additional documentation or proof is required to claim this deduction.
- The deduction applies before computing taxable income, directly reducing the tax burden.
Although the new tax regime does not allow various other exemptions and deductions like HRA, 80C, or 80D, the inclusion of standard deduction makes it slightly more attractive for taxpayers, especially those who do not have significant tax-saving investments.
Who Can Claim the Standard Deduction?
The standard deduction in new tax regime is available to specific categories of taxpayers to help reduce their taxable income. It is automatically applied when calculating income tax, without requiring any investment proofs or additional documentation.
Eligible Taxpayers
The following individuals can claim the ₹50,000 standard deduction under the new tax regime:
- Salaried Employees – Both private-sector and government-sector employees can claim the standard deduction. It is deducted directly from the gross salary before tax is calculated.
- Pensioners – Retired individuals receiving a pension from their previous employer are eligible for the standard deduction. This applies whether they receive the pension from the government or a private organization.
Who Cannot Claim the Standard Deduction?
- Family Pensioners – Individuals receiving a family pension (i.e., pension given to a deceased employee’s spouse or dependents) cannot claim the standard deduction. However, they can claim a separate deduction of ₹15,000 or 1/3rd of the pension amount, whichever is lower, under Section 57(iia) of the Income Tax Act.
- Self-Employed Individuals & Business Owners – Unlike salaried individuals, freelancers, self-employed professionals, and business owners are not eligible for the standard deduction. However, they can claim other deductions related to business expenses under relevant income tax provisions.
Key Highlights:
- Salaried individuals and pensioners can benefit from the ₹50,000 standard deduction in new tax regime.
- Self-employed individuals and business owners do not qualify for this deduction.
- Family pensioners have a separate deduction limit of ₹15,000 instead of the standard deduction.
Understanding who can claim the standard deduction is essential to maximizing tax benefits. In the next section, we will explore how this deduction impacts income tax calculations under the new tax regime.
How Standard Deduction Impacts Tax Calculation in the New Regime
The standard deduction in new tax regime plays a crucial role in reducing taxable income, thereby lowering the total income tax liability. Since this deduction is a flat ₹50,000 reduction, it applies before tax rates are calculated, benefiting salaried employees and pensioners.
How Does the Standard Deduction Reduce Taxable Income?
When an individual earns a salary or pension, their gross income is considered for taxation. However, before applying tax rates, a ₹50,000 standard deduction is subtracted, bringing down the taxable salary or pension.
Example: Tax Calculation for an Individual Earning ₹10 Lakh Per Year
Let’s compare how the standard deduction affects tax liability under both tax regimes for a salaried individual with an annual income of ₹10,00,000.
Tax Calculation Under the Old Tax Regime
- Gross Income: ₹10,00,000
- Standard Deduction: ₹50,000
- Other Deductions (80C, 80D, HRA, etc.): ₹1,50,000 (Assumed)
- Taxable Income: ₹8,00,000
- Tax Calculation (As per Old Tax Regime Rates):
| Income Slab | Tax Rate | Tax Amount |
|---|---|---|
| ₹0 – ₹2,50,000 | 0% | ₹0 |
| ₹2,50,001 – ₹5,00,000 | 5% | ₹12,500 |
| ₹5,00,001 – ₹8,00,000 | 20% | ₹60,000 |
| Total Tax Payable | ₹72,500 |
Tax Calculation Under the New Tax Regime (With Standard Deduction)
- Gross Income: ₹10,00,000
- Standard Deduction: ₹50,000
- Taxable Income: ₹9,50,000
- No Other Deductions Allowed
- Tax Calculation (As per New Tax Regime Rates for FY 2025-26):
| Income Slab | Tax Rate | Tax Amount |
|---|---|---|
| ₹0 – ₹3,00,000 | 0% | ₹0 |
| ₹3,00,001 – ₹6,00,000 | 5% | ₹15,000 |
| ₹6,00,001 – ₹9,00,000 | 10% | ₹30,000 |
| ₹9,00,001 – ₹9,50,000 | 15% | ₹7,500 |
| Total Tax Payable | ₹52,500 |
Comparison: Tax Liability With and Without Standard Deduction
| Scenario | Old Tax Regime (With Other Deductions) | New Tax Regime (With Standard Deduction Only) | New Tax Regime (Without Standard Deduction) |
|---|---|---|---|
| Gross Income | ₹10,00,000 | ₹10,00,000 | ₹10,00,000 |
| Standard Deduction | ₹50,000 | ₹50,000 | ₹0 |
| Other Deductions (80C, 80D, etc.) | ₹1,50,000 | Not Applicable | Not Applicable |
| Taxable Income | ₹8,00,000 | ₹9,50,000 | ₹10,00,000 |
| Total Tax Payable | ₹72,500 | ₹52,500 | ₹60,000 |
Key Highlights:
- The standard deduction in new tax regime lowers taxable income by ₹50,000.
- Compared to not claiming the deduction, an individual earning ₹10 lakh saves ₹7,500 in taxes.
- Under the old tax regime, other deductions further reduce taxable income, which can sometimes result in more savings.
Thus, while the new tax regime offers simplicity, taxpayers must carefully evaluate whether they benefit more from keeping other deductions under the old regime or opting for the flat standard deduction in the new regime.
Is the Standard Deduction Enough to Make the New Tax Regime Beneficial?
The standard deduction in new tax regime provides a flat ₹50,000 deduction to salaried employees and pensioners, reducing taxable income. However, since the new tax regime does not allow other deductions and exemptions, many taxpayers wonder if this deduction alone makes the new system beneficial. Let’s analyze its impact.
Does the New Tax Regime Offer More Tax Savings?
The new tax regime offers lower income tax rates compared to the old regime, but it eliminates popular deductions such as:
- Section 80C – No deductions for PPF, EPF, Life Insurance Premiums, ELSS, or Home Loan Principal
- Repayment (Max ₹1.5 lakh under the old regime).
- Section 80D – No deductions for health insurance premiums.
- House Rent Allowance (HRA) – No exemption for rented accommodation expenses.
- Home Loan Interest (Section 24b) – No ₹2 lakh deduction for home loan interest payments.
While the standard deduction of ₹50,000 is beneficial, losing these tax-saving options may lead to a higher tax liability in some cases.
Who Benefits More from the New Tax Regime?
| Category | Better With Old Tax Regime | Better With New Tax Regime |
|---|---|---|
| Low-Income Earners (< ₹7 lakh) | No | Yes (No tax due to rebate under Section 87A) |
| Salaried Individuals Claiming 80C & HRA | Yes | No |
| Salaried Employees Without Major Deductions | No | Yes |
| Pensioners | Yes (If claiming 80D, etc.) | Yes (If relying only on standard deduction) |
| High-Income Earners (₹15 lakh & above) | No | Yes (Lower tax rates) |
Key Highlights:
- The new tax regime is beneficial for those who don’t claim many deductions and prefer lower tax rates with simplicity.
- Individuals who invest in tax-saving options like PPF, ELSS, or home loans may save more in the old tax regime.
- Pensioners who only rely on the standard deduction may find the new tax regime advantageous.
- Salaried employees with high deductions under 80C, 80D, and HRA should carefully compare before switching.
Thus, while the ₹50,000 standard deduction reduces taxable income, it may not be enough for every taxpayer to choose the new tax regime. Careful tax planning is essential to maximize benefits.
Common Misconceptions About Standard Deduction in the New Tax Regime
Many taxpayers have misunderstandings about the standard deduction in new tax regime, leading to confusion about their tax benefits. Let’s debunk some of the most common myths.
Myth 1: “Standard Deduction is Not Available in the New Tax Regime” – Debunked!
False! When the new tax regime was introduced in FY 2020-21, the standard deduction was initially not available. However, from FY 2023-24, the government reinstated the ₹50,000 standard deduction for salaried employees and pensioners under the new tax regime.
Fact: The standard deduction applies in both the old and new tax regimes.
Myth 2: “Only Government Employees Can Claim Standard Deduction” – False!
Wrong! Some believe that only government employees can claim the ₹50,000 standard deduction under the new tax regime, but that’s not true.
Fact: The standard deduction is available to all salaried employees (both private and government sector) and pensioners. However, family pensioners can only claim a ₹15,000 deduction under Section 57(iia).
Myth 3: “Standard Deduction Varies by Salary Amount” – Incorrect!
Misleading! Some assume that the standard deduction is a percentage of salary and varies for different income levels.
Fact: The standard deduction is fixed at ₹50,000 for all salaried individuals and pensioners, regardless of their salary or pension amount. Whether someone earns ₹5 lakh or ₹50 lakh, they can still claim ₹50,000 as a deduction under the new tax regime.
Key Takeaways:
- The standard deduction is available in new tax regime since FY 2023-24.
- Both private and government employees can claim the deduction.
- It remains a fixed ₹50,000 deduction, irrespective of salary amount.
Understanding these facts helps taxpayers make informed financial decisions and maximize their tax benefits under the new tax regime.
Future of Standard Deduction: Expected Changes & Budget Updates
The standard deduction in the new tax regime has become an essential tax benefit for salaried individuals and pensioners. With each Union Budget, taxpayers eagerly anticipate changes that could increase their savings. Let’s explore the possible future revisions and expectations regarding standard deduction.
Will the Standard Deduction Increase in Future Budgets?
The government introduced the ₹50,000 standard deduction to provide relief to salaried employees and pensioners. However, considering rising inflation and increased cost of living, many experts believe that the standard deduction limit may be revised upward in the coming years.
Factors That May Influence an Increase:
- Inflation Impact: Rising inflation affects the real value of income, making a higher deduction necessary.
- Parity with Other Deductions: Since the new tax regime does not allow Section 80C, HRA, or home loan interest deductions, an increased standard deduction could make it more attractive.
- Taxpayer Demand: Several industry bodies and taxpayers have urged the government to increase the standard deduction to ₹75,000 or ₹1 lakh.
- Recent Budget Announcements & Expected Updates
While the Union Budget 2025 retained the ₹50,000 standard deduction, financial experts speculate that future budgets may bring:
- A Gradual Increase: The government may raise the standard deduction in phases (e.g., ₹60,000 in the next budget).
- Differentiated Standard Deduction: There could be different limits based on salary brackets, offering higher deductions for middle-class taxpayers.
- Inclusion of Other Deductions: Some exemptions might return to the new tax regime to encourage adoption.
What Taxpayers Should Do?
Since tax policies change with economic conditions, taxpayers should:
- Stay updated with budget announcements for any revision in the standard deduction.
- Compare both tax regimes annually to determine the best option.
- Utilize other available benefits, such as the rebate under Section 87A (for incomes up to ₹7 lakh in FY 2025-26).
While the standard deduction in new tax regime remains at ₹50,000, future budgets may increase this limit to provide better tax relief. Taxpayers should stay informed about policy changes to optimize their tax savings.
Conclusion: Should You Opt for the New Tax Regime?
Choosing between the old vs. new tax regime depends on your income structure, tax-saving preferences, and financial goals. The standard deduction in the new tax regime offers relief, but it’s crucial to evaluate whether it provides the best overall tax benefit for you.
Key Takeaways:
- The standard deduction of ₹50,000 is available in both tax regimes for salaried employees and pensioners.
- The new tax regime offers lower tax rates but eliminates popular exemptions and deductions (such as Section 80C, HRA, home loan interest, and medical insurance deductions).
- The old tax regime remains beneficial for individuals who actively invest in tax-saving instruments.
- Future budgets may increase the standard deduction, making the new tax regime more attractive.
Who Should Choose the New Tax Regime?
- Individuals who do not claim multiple tax deductions.
- Salaried employees or pensioners looking for a simpler tax filing process.
- Those earning up to ₹7 lakh, as they qualify for full tax rebate under Section 87A in the new tax regime.
Who Should Stay in the Old Tax Regime?
- Taxpayers who utilize Section 80C (₹1.5 lakh), 80D (medical insurance), HRA, and home loan interest deductions.
- Individuals with significant investments in PPF, EPF, NPS, and ELSS.
- Those seeking maximum tax savings through exemptions and deductions.
Find the Best Tax-Saving Option for You!
Not sure which tax regime is best for you? Use our Income Tax Calculator to compare your tax liability under both regimes and make an informed decision.
By analyzing your income, deductions, and tax rates, you can optimize your tax planning and maximize your savings!
FAQ
What is the standard deduction in new tax regime?
The standard deduction in the new tax regime is ₹50,000 for both salaried employees and pensioners in FY 2025-26.
Who can claim the standard deduction?
Salaried employees and pensioners (excluding family pensioners) can claim the ₹50,000 standard deduction.
Is the standard deduction available in the old tax regime?
Yes, the ₹50,000 standard deduction is available in both the old and new tax regimes.
Can self-employed individuals claim the standard deduction?
No, the standard deduction is only for salaried individuals and pensioners, not for self-employed individuals.
How does the standard deduction affect taxable income?
The standard deduction reduces taxable income by ₹50,000, lowering overall tax liability.
Does the standard deduction make the new tax regime better?
It helps reduce taxable income, but the new tax regime lacks other deductions like 80C, HRA, and home loan interest.
Will the standard deduction increase in the future?
Experts predict that the government may raise the standard deduction in future budgets to provide better tax relief.
Which tax regime should I choose?
It depends on your deductions. Use our Income Tax Calculator to compare and decide.