Standard Deduction for FY 2024-25: Old vs New Regime, Eligibility & Tax Benefits

Learn the latest rules for standard deduction in FY 2024-25. Know the limits under old and new tax regimes, family pension benefits, and how it reduces taxable income. Get examples, FAQs, and practical insights to choose the right regime.

Tax planning is one of the most important aspects of personal finance. For salaried employees and pensioners, the standard deduction for FY 2024-25 plays a key role in reducing taxable income and lowering tax liability. With the Union Budget 2024 introducing changes, many taxpayers are unsure whether they are eligible for ₹50,000 or ₹75,000, and how this impacts their overall savings.

This guide explains the latest rules, eligibility, and benefits of the standard deduction in simple terms, so you can confidently file your income tax return for Assessment Year 2025-26.

What is the Standard Deduction?

The standard deduction is a flat deduction available to salaried individuals and pensioners under Section 16(ia) of the Income Tax Act, 1961. It was introduced in 2018 to simplify taxation by replacing specific allowances such as transport allowance and medical reimbursement. Instead of claiming multiple exemptions, a single deduction amount is automatically reduced from your taxable salary or pension.

Key features:

• Available to all salaried individuals and pensioners, regardless of actual expenses.
• No proof, bills, or declarations are required.
• Deduction is “₹50,000 or the amount of salary/pension, whichever is lower.”
• Applicable before calculating taxable income under both the old and new tax regimes.

For authoritative details, you can refer to the official Income Tax Department portal which publishes circulars and FAQs on income tax rules.

Changes in FY 2024-25 (Union Budget 2024)

The Union Budget 2024 made a significant revision to the standard deduction under the new tax regime. Here’s what changed for the financial year 2024-25:

• Old Tax Regime: Standard deduction continues at ₹50,000.
• New Tax Regime (Section 115BAC): Standard deduction has been increased to ₹75,000.
• Family Pension: Deduction for family pension income increased to ₹25,000 (earlier ₹15,000).

These changes are effective from 1 April 2024, meaning they apply for income earned in FY 2024-25 and reported in AY 2025-26. The Finance Act (No. 2), 2024 formally inserted the revised limits.

Here’s a quick snapshot:

This enhancement makes the new tax regime more attractive for many middle-income earners, since the higher deduction directly reduces taxable income. Reputed sources like Economic Times have confirmed these updates.

Old Regime vs New Regime — Which Standard Deduction Applies?

One of the most common doubts among taxpayers is whether the standard deduction for FY 2024-25 is ₹50,000 or ₹75,000. The answer depends entirely on the tax regime you choose.

Standard Deduction in Old vs New Regime

Under the old tax regime, taxpayers can claim deductions under various sections (80C, 80D, HRA, home loan interest, etc.) along with a fixed ₹50,000 standard deduction.

In contrast, the new tax regime offers lower tax rates but restricts most exemptions and deductions. To make it attractive, the government increased the standard deduction to ₹75,000 from FY 2024-25. This benefit applies automatically to all salaried individuals and pensioners who opt for the new regime.

Here’s a side-by-side comparison:

Practical Implications

• Middle-Income Earners (₹7–15 lakh range): New regime with ₹75,000 deduction often leads to lower tax outgo, especially if you do not claim large 80C/80D deductions.
• High-Income Earners with Investments: Old regime may still be better if you invest heavily in instruments like PPF, ELSS, or claim housing loan interest.
• Pensioners: Benefit under both regimes, but the new regime provides a higher standard deduction.

For a quick check, you can use the government’s tax calculator to compare both regimes with your income details.

Why the Government Increased the Deduction in New Regime

The hike to ₹75,000 standard deduction under the new regime was aimed at encouraging more people to shift away from the old system. The old regime continues to be popular because of the wide range of deductions and exemptions.

By increasing the deduction amount exclusively under the new regime, the government hopes to balance the lack of other exemptions while simplifying compliance. This move is part of the broader roadmap to eventually make the new regime the default for most taxpayers, a trend highlighted in policy discussions across Business Standard.

How to Calculate Taxable Income Using Standard Deduction

The standard deduction for FY 2024-25 is applied directly to your gross salary or pension before calculating taxable income. This ensures your taxable base reduces automatically, lowering the final tax payable.

Step-by-Step Process

1. Identify Gross Salary or Pension
   Include basic pay, allowances (taxable ones), and any perquisites. Exclude exempt components such as HRA (if eligible) under the old regime.
2. Subtract Standard Deduction
   • ₹50,000 if you opt for the old regime
   • ₹75,000 if you opt for the new regime

   Important: If your salary or pension is less than the deduction amount, the deduction is restricted to your actual income.

3. Apply Other Deductions (if in old regime)
   Claim investments under 80C, medical premiums under 80D, home loan interest, etc.
4. Arrive at Net Taxable Income
   Apply the relevant tax slab rates based on the regime chosen.

Example 1: Salaried Employee in Old Regime

• Gross Salary: ₹8,00,000
• Standard Deduction: ₹50,000
• Income after Standard Deduction: ₹7,50,000
• Less 80C (Investments in PPF/ELSS etc.): ₹1,50,000
• Taxable Income: ₹6,00,000

This employee pays tax based on slabs applicable to the old regime.

Example 2: Salaried Employee in New Regime

• Gross Salary: ₹8,00,000
• Standard Deduction: ₹75,000
• Income after Standard Deduction: ₹7,25,000
• No further deductions allowed (except a few like employer’s NPS contribution)
• Taxable Income: ₹7,25,000

Here, the new regime provides a straightforward calculation and could result in lower tax compared to the old regime if the employee has limited investments.

Example 3: Pensioner with Family Pension

• Family Pension Income: ₹2,20,000
• Deduction: ₹25,000 (as per FY 2024-25 rule)
• Taxable Family Pension: ₹1,95,000

This makes compliance simpler for pensioners and provides relief without requiring additional proof.

Edge Cases to Note

• Salary less than deduction: If your annual salary is ₹45,000, the deduction will be restricted to ₹45,000, making taxable income nil.
• Multiple Employers: If you worked with two employers in the same year, the total standard deduction is still limited to one claim, not per employer.
• Combination of Salary and Pension: Retirees drawing pension from an employer and salary from a new job can still claim only one standard deduction.

For clarity, you can cross-check with the CBDT FAQs and the official e-filing portal where computation examples are periodically updated.

Important Considerations and Legal Aspects

While the standard deduction for FY 2024-25 looks simple, there are several practical points and legal provisions to keep in mind. These ensure you apply it correctly and avoid confusion during tax filing.

Section 16(ia) of the Income Tax Act

The standard deduction is governed by Section 16(ia) of the Income Tax Act, 1961. The Finance Act (No. 2), 2024 amended this section to provide a higher deduction of ₹75,000 under the new regime while keeping ₹50,000 under the old regime.

This amendment came into effect from 1 April 2024 and applies to income earned during FY 2024-25, assessed in AY 2025-26.

No Documentation Required

Unlike other deductions, no bills, investment proofs, or certificates are needed. The deduction is automatic and applied directly by your employer while preparing Form 16 or by the taxpayer if filing independently.

This makes the process hassle-free and is one of the reasons why it replaced earlier exemptions like medical allowance and transport allowance.

How It Appears in Form 16 and TDS

Employers automatically factor in the standard deduction while computing taxable salary for TDS purposes.

• In Form 16, Part B, the standard deduction is shown under the “Deductions under Section 16” field.
• Employees should cross-check this value to ensure it reflects the correct amount — ₹50,000 (old regime) or ₹75,000 (new regime).
• If not applied correctly, employees can adjust it while filing their return on the Income Tax e-Filing portal.

Drafting Ambiguities and Clarifications

Although most updates are clear, some FAQs and circulars have not yet been updated to reflect the increased ₹75,000 deduction under the new regime. For instance, certain government-issued FAQs still mention ₹50,000 for both regimes.

Tax professionals recommend relying on the Finance Act (No. 2), 2024 and trusted sources such as Taxmann or government budget documents for the most accurate details.

Interaction with Other Allowances

• The standard deduction replaced earlier allowances, meaning those cannot be claimed separately.
• However, other specific exemptions like House Rent Allowance (HRA), Leave Travel Allowance (LTA), or deductions under Chapter VI-A are still available under the old regime.
• In the new regime, most of these are not allowed, which is why the government increased the standard deduction to balance the gap.

Conclusion: What Taxpayers Should Do Next

The standard deduction for FY 2024-25 is one of the simplest ways to reduce taxable income. Salaried employees and pensioners automatically enjoy this benefit without extra paperwork.

• Old Regime: Deduction remains ₹50,000. Best suited for those who invest heavily in tax-saving instruments.
• New Regime: Deduction increased to ₹75,000. Better for those preferring simplicity or with limited deductions.
• Family Pension: Deduction increased to ₹25,000, providing extra relief to families.

When choosing between the old and new regimes, compare your tax liability carefully. Use online calculators, review your Form 16, and consider your investment patterns.

Taxpayers should also stay updated with notifications from the Income Tax Department to ensure they apply the correct limits and rules each year.

Final Takeaway

The enhanced standard deduction is a clear sign that the government is nudging taxpayers toward the new regime. Whether you choose old or new, understanding the rules ensures you don’t miss out on benefits that are rightfully yours.

If you want more clarity, explore professional tax advisory or use trusted financial tools to plan better. Staying informed today can help you save more tomorrow.

FAQ

What is the standard deduction for FY 2024-25?

The standard deduction is ₹50,000 under the old regime and ₹75,000 under the new regime for FY 2024-25. Pensioners can also claim it.

Is standard deduction available in both old and new regimes?

Yes. It is available in both regimes, but the limit differs. Old regime allows ₹50,000, while the new regime allows ₹75,000.

Can pensioners claim standard deduction for FY 2024-25?

Yes. Pensioners can claim the deduction, and family pensioners get ₹25,000. This applies under both old and new regimes.

What happens if salary is less than the standard deduction?

If your salary or pension is less than the deduction amount, it is limited to your actual income. Taxable income becomes nil.

Do I need to submit proof to claim the standard deduction?

No proof or documents are required. The deduction is applied automatically by employers in Form 16 or while filing ITR.

What is the family pension deduction for FY 2024-25?

The family pension deduction has increased to ₹25,000 in FY 2024-25, up from the earlier ₹15,000 limit.

How is the standard deduction shown in Form 16?

It appears under “Deductions under Section 16” in Form 16. Employers apply it before calculating TDS on salary.

Which regime is better for standard deduction in FY 2024-25?

The new regime offers a higher deduction of ₹75,000 but restricts other exemptions. The old regime suits those with heavy tax-saving investments.