Standard Deduction for AY 2025–26: Complete Guide for Salaried and Pensioners

A detailed guide on the ₹75,000 standard deduction for AY 2025–26. Learn who can claim it, compare old vs new regimes, see tax savings & avoid mistakes.

As the new assessment year unfolds, one of the most awaited and impactful updates for salaried individuals and pensioners is the standard deduction for AY 2025–26. With a raised benefit under the new tax regime and continued support for the old, this single provision could directly affect your take-home salary or pension, tax liability, and overall financial planning.

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For Assessment Year 2025–26 (i.e., Financial Year 2024–25), the standard deduction has been increased to ₹75,000 for those opting for the new tax regime, while it remains unchanged at ₹50,000 under the old regime. This change was officially proposed during the Union Budget 2024 and applies to both government and private sector salaried individuals, as well as eligible pensioners.

Whether you’re filing your return, adjusting monthly TDS, or just comparing your salary impact, understanding how this deduction works is crucial — especially now, when choosing between the two tax regimes is more nuanced than ever.

What is Standard Deduction in Income Tax?

Standard deduction is a fixed deduction from your taxable salary or pension allowed without needing any bills, investments, or declarations. It was reintroduced in Union Budget 2018 after being abolished for a few years and has since become a stable part of income tax calculations.

This deduction falls under Section 16(ia) of the Income Tax Act and applies automatically to all salaried individuals and pensioners with taxable income under the “Salaries” head. You don’t need to submit any documents to claim it — it’s subtracted by default before tax is computed.

Standard Deduction for FY 2024-25: New Rules, ₹75,000 Limit, and Tax Benefits Explained Simply

What’s Changed in AY 2025–26?

The most significant update is the ₹75,000 standard deduction in the new tax regime, a jump from ₹50,000 in the previous year. This was announced as a measure to make the new regime more attractive and competitive with the older one, which offers multiple itemized deductions.

Here’s a comparison of the deduction limit across regimes and assessment years:

This increase in deduction under the new regime means you can save up to ₹7,500 in taxes (if you’re in the 30% slab), improving your net income without any paperwork.

According to the official Income Tax India portal, this deduction is applied upfront by your employer or payroll provider while computing your taxable income. Additionally, tax consultancy platforms like ClearTax have acknowledged its role in bridging the gap between both regimes.

Who Can Claim Standard Deduction for AY 2025–26?

The eligibility for standard deduction for AY 2025–26 is broad yet specific. It is automatically extended to individuals drawing a taxable income categorized under the “Salaries” head of income. This includes full-time salaried employees, central and state government staff, private sector workers, and certain pensioners.

✔ Salaried Employees

If you receive a regular salary through payroll, the deduction is auto-applied by your employer while calculating your taxable salary. It’s important to verify this deduction in your Form 16, under the section related to “Deductions under Section 16.”

✔ Pensioners

Pensioners receiving income from a previous employer’s pension scheme can also claim the standard deduction, provided the pension is taxable under the “Income from Salaries” head. The Central Board of Direct Taxes (CBDT) clarified this eligibility in Circular No. 761, ensuring parity between working individuals and retired employees. This clarification is especially relevant for government retirees receiving defined pension benefits.

As confirmed in the PIB press release, the increase in standard deduction is aimed at simplifying tax calculations and easing the compliance burden.

Old vs New Regime: Where Does the Deduction Matter More?

With both tax regimes continuing to coexist, the standard deduction for AY 2025–26 plays a critical role in decision-making. Under the old regime, although the deduction remains at ₹50,000, you can club it with other tax-saving investments like Section 80C, 80D, and HRA.

In contrast, the new regime (post Budget 2024 revisions) offers a higher standard deduction of ₹75,000, but very limited additional exemptions. It’s best suited for those who don’t claim many investment-linked deductions or whose employers have shifted them by default into the new structure.

Here’s a simplified scenario:

You can explore the exact impact by visiting India Budget Portal where updated slab details and rebate structures are published officially.

How Much Tax Can You Save with ₹75,000 Standard Deduction?

Understanding the real-world tax impact of the standard deduction for AY 2025–26 helps you make informed decisions. The deduction directly lowers your taxable income, which in turn reduces the tax you owe. The higher the tax slab you fall under, the more savings you enjoy.

For instance, someone in the 30% slab saves up to ₹7,500 in taxes due to the ₹75,000 deduction. For middle-income earners in the 10% or 20% slabs, the benefit ranges between ₹7,500 and ₹1,875 depending on their income level.

Here’s a quick view:

Note: Tax saved is a rough approximation assuming full deduction is used against income in the corresponding slab.

To accurately assess your tax benefit, you can use trusted tools such as the Income Tax Calculator by TaxGuru or the official calculator from the Income Tax Department. These calculators automatically account for standard deduction based on the selected regime and slab.

This deduction becomes especially meaningful for those who do not invest heavily in other eligible deductions under 80C, 80D, or NPS. The default nature of this benefit ensures that every eligible taxpayer receives the benefit without needing to submit investment proofs or declarations.

How to Verify If Standard Deduction is Being Applied

For most salaried individuals, the standard deduction for AY 2025–26 will already be applied by the employer in monthly salary calculations and reflected in the annual Form 16.

Here’s how you can verify it:

• Salary Slip Check: Look at the “Income Tax Deduction” section and compare the “Gross Salary” with “Taxable Salary.” The ₹75,000 should be adjusted here if you’re under the new regime.
• Form 16: Under Part B, check the “Deductions under Section 16(ia)” line item. If it’s blank or shows a lower amount than ₹75,000, you may want to follow up with your HR.
• ITR Portal: While pre-filling your return, the standard deduction field is auto-populated based on Form 16 and AIS (Annual Information Statement).

This verification is important because errors in payroll software or manual entries could cause your deduction to be missed. If you’re a pensioner filing income independently, make sure you select “Salary” as the income head for your pension to ensure this deduction is applied.

Common Misconceptions About Standard Deduction for AY 2025–26

Despite being one of the most straightforward tax benefits, the standard deduction for AY 2025–26 still causes confusion among many taxpayers — especially during regime selection or ITR filing. Here are some of the most common myths, along with what you really need to know:

✔ Is Standard Deduction Optional or Automatic?

It is automatically applied by default if your income includes any head under “Salaries” or pension. You do not need to opt in or file any separate forms. Whether you’re filing ITR-1 or ITR-2, it will appear as a pre-filled deduction while filing online via the ITR e-filing portal.

✔ Can You Claim It in Both Old and New Regime?

Yes — but the amount differs. Under the old regime, the standard deduction remains ₹50,000. Under the new regime (as applicable for AY 2025–26), it has been increased to ₹75,000. You can claim it in only one regime, depending on which one you choose.

Switching between regimes during filing is allowed once per financial year. But once selected, the deduction applicable to that regime alone will be considered.

✔ Is the Deduction Available to Pensioners?

Yes, if your pension is received from a previous employer and is taxed under the head “Salaries”, you are eligible for this deduction. The clarification from CBDT ensures that retired government and private sector employees aren’t left out.

✔ Can Freelancers or Consultants Claim It?

No. Only those with income under the “Salary” head — including pensioners — are eligible. Self-employed individuals, freelancers, or those earning income from profession or business under ITR-3 or ITR-4 cannot claim this deduction.

✔ Is it the Same as 80C?

Not at all. The standard deduction is completely separate from Section 80C deductions. It doesn’t require any investment or receipts and is a flat deduction. Section 80C, on the other hand, includes ELSS, PPF, LIC, EPF, and similar instruments, all of which need actual contribution and documentation.

Understanding these differences helps avoid costly errors while filing your returns or planning your tax-saving strategy. If you are unsure of your eligible deductions, a good practice is to download your Form 26AS or review the Annual Information Statement (AIS) for all auto-reported income details.

Final Tips: How to Maximise the Benefit of Standard Deduction for AY 2025–26

The standard deduction for AY 2025–26 is a welcome relief in the midst of rising inflation and cost-of-living adjustments. Whether you are a first-time filer or a long-time government employee, using this deduction smartly can enhance your post-tax income significantly.

Here are a few final suggestions to ensure you’re not missing out:

1. Check With Your Employer (Or HRMS Portal)

Most employers apply this deduction while calculating monthly TDS. But it’s still wise to verify it manually, especially if you’ve changed regimes during the year. You can also confirm via salary statements, payslips, or platforms like TRACES under the TDS Reconciliation Analysis and Correction Enabling System.

2. Don’t Forget to Re-Evaluate Your Regime Choice

If you’re someone who traditionally chose the old regime due to 80C/80D benefits, it’s time to compare both structures again. With the increase in standard deduction under the new regime, many mid-level salaried taxpayers may now find it more rewarding — especially those not using full exemptions. Tools like EY India’s Tax Calculator can simulate both options instantly.

3. Watch Out for Form 16 Mismatches

If you find that the deduction isn’t correctly reflected in your Form 16, request your payroll department to revise it. This will ensure consistency when you file your ITR and avoid unwanted scrutiny or mismatch notices from the Income Tax Department.

4. Use It Alongside Rebates (If Eligible)

Remember, standard deduction is independent of the rebate under Section 87A. So, even if you’re in the sub-₹7 lakh income group and qualify for a full tax rebate, the deduction still helps in bringing your gross total income down, thereby enhancing rebate eligibility in some edge cases.

Conclusion: Small Deduction, Big Impact

The increased standard deduction for AY 2025–26 might appear like a routine change, but its impact on your annual tax outgo can be substantial — especially when combined with the broader features of the revised new tax regime.

For most salaried taxpayers, this ₹75,000 deduction means a direct tax saving with zero paperwork. For pensioners, it brings equity and ease. And for those navigating between the two tax regimes, it adds one more variable to optimise savings.

Before filing, revisit your salary structure, examine regime pros and cons, and consult an expert if needed — because every deduction counts.

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