Standard Deduction Under Section 16(ia) – Latest Rules, ₹50,000 & ₹75,000 Benefits Explained (FY 2024-25)

Understand the standard deduction under Section 16(ia) with updated rules for FY 2024-25. Find out how salaried employees and pensioners can claim ₹50,000 or ₹75,000, compare regimes, and maximize tax savings easily.

Introduction

For every salaried employee or pensioner in India, one of the simplest ways to reduce taxable income is through the standard deduction under Section 16(ia). Unlike other deductions where you need bills, proofs, or investment documents, this benefit is automatic. It lowers your income tax liability without extra paperwork and applies directly when your employer calculates TDS or when you file your return.

With recent changes announced in the Union Budget 2024, many people are confused about whether the deduction is ₹50,000 or ₹75,000, and whether it applies under the old tax regime, the new tax regime, or both. This article clears the confusion, explains the rules for FY 2024-25 (AY 2025-26), and shows how you can make the most of this benefit.

What is Standard Deduction under Section 16(ia)?

The standard deduction under Section 16(ia) of the Income Tax Act, 1961 is a flat deduction allowed from salary or pension income. It was introduced to simplify tax compliance and provide relief to taxpayers without requiring them to submit supporting bills or documents.

• Eligibility: All salaried individuals and pensioners.
• Nature: Fixed deduction, not linked to actual expenses.
• Proof required: None.
• Limit: Cannot exceed your salary or pension income.

The Income Tax Department clearly states that this deduction is automatically factored in by employers while preparing Form-16, and pensioners can claim it while filing their income tax return through the official portal.

Why Was It Introduced?

Before 2018, salaried taxpayers could claim:

• Transport allowance of ₹19,200 per year
• Medical reimbursement of up to ₹15,000 per year

Both required documentation or proof. To simplify, the government replaced them with a single standard deduction, first introduced at ₹40,000 in Budget 2018. It was later increased to ₹50,000, and more recently, to ₹75,000 under certain conditions.

This shift made compliance easier while ensuring that employees and pensioners continued to get tax relief. For example, someone earning ₹6 lakh annually would automatically see taxable income reduced by ₹50,000 or ₹75,000 depending on the applicable regime.

Historical Evolution of Standard Deduction

This timeline shows that the deduction has consistently been a cornerstone of salary taxation. The latest Budget expanded it further for the new regime, signaling the government’s push toward making the new regime more attractive.

Latest Changes in Standard Deduction: Budget 2024

The Union Budget 2024 brought a significant update for taxpayers opting into the new tax regime. The standard deduction under Section 16(ia) was increased from ₹50,000 to ₹75,000, effective from FY 2024-25 (AY 2025-26).

This enhancement was specifically introduced to make the new regime more attractive, since it disallows most exemptions and deductions but promises lower tax rates. The government recognized that without a meaningful standard deduction, many middle-class taxpayers still preferred the old system.

Legal Provisions and Drafting Concerns

The Finance (No. 2) Act, 2024 amended Section 16(ia) by inserting a proviso that allows a ₹75,000 deduction for taxpayers covered under Section 115BAC(1A)(ii) of the Act.

However, tax experts have pointed out a drafting gap. From AY 2026-27 onward, clause (ii) will be replaced by clause (iii), and the current wording of Section 16(ia) does not clearly extend the higher deduction to clause (iii). Unless corrected, this could technically mean that the higher deduction applies only for AY 2025-26.

This potential loophole has been discussed in professional circles and highlighted in updates on TaxTMI. While most expect the government to fix this with an amendment or clarification, it remains an important point for taxpayers to watch.

Standard Deduction in Old vs New Tax Regime

The amount of deduction depends on the tax regime you choose:

This means that if you earn a salary of ₹6 lakh per year and opt for the new regime, your taxable salary will automatically reduce by ₹75,000, making your taxable income ₹5.25 lakh. Under the old regime, the deduction would be capped at ₹50,000.

For official details on how these deductions appear in both regimes, you can review the updated Income Tax Department FAQs.

Why the Change Matters

For many taxpayers in the middle-income bracket, this extra ₹25,000 deduction under the new regime translates into real tax savings. For example:

• Taxable income before deduction: ₹10,00,000
• Standard deduction (new regime): ₹75,000
• Revised taxable income: ₹9,25,000

At a 20% tax rate slab, this saves ₹5,000 in tax compared to the old deduction of ₹50,000. While the new regime still needs careful evaluation (since it disallows deductions like HRA, 80C, 80D, etc.), the higher standard deduction is a meaningful incentive.

How to Claim the Standard Deduction

The biggest advantage of the standard deduction under Section 16(ia) is that you do not need to apply separately or submit any documents. It is automatically considered when calculating your salary income. Still, it helps to understand how the process works at each stage.

Through Your Employer (Form-16 and TDS)

When your employer prepares the monthly payroll and annual Form-16, they are required to reduce your salary income by the standard deduction amount.

For example:

• Gross salary: ₹8,00,000
• Less standard deduction: ₹50,000 (old regime) / ₹75,000 (new regime)
• Taxable salary shown in Form-16: ₹7,50,000 or ₹7,25,000 depending on regime

This ensures your TDS is deducted on the reduced income. You can verify this in Part B of Form-16, which lists “Deductions under Section 16” clearly. If it is missing, you should ask your employer’s payroll team to make the correction.

For clarity, the Central Board of Direct Taxes (CBDT) provides employers with guidance on salary TDS, which can be found in the official circulars.

For Pensioners

Pension received from a former employer is treated as “salary income” under the Income Tax Act. This means pensioners are also eligible for the same deduction.

• Family pension is an exception—it is taxed under “Income from Other Sources,” not under “Salary.” For family pensioners, a different deduction under Section 57 is available (one-third of pension or ₹15,000, whichever is less).

Thus, only individuals receiving their own retirement pension can claim the standard deduction under Section 16(ia).

While Filing ITR

Even if your employer has already given the benefit, you should double-check while filing your return. The ITR forms have a field under Schedule Salary where “Deduction under Section 16(ia)” is auto-calculated.

If you had multiple employers during the year, you must ensure the deduction is not missed or duplicated. In such cases, consolidate your salary details and claim only one deduction (₹50,000 or ₹75,000 as applicable).

The Income Tax e-filing portal automatically adjusts this when you enter your salary, but you should still verify before final submission.

Key Points to Remember

• The deduction is automatic; no bills, medical slips, or transport proofs are required.
• It is not optional; every salaried person and pensioner is entitled to it.
• If your salary or pension is less than the deduction limit, you can claim only up to that income amount.
• Self-employed individuals or business professionals cannot claim this deduction, since it is only for salary income.

Examples to Understand the Impact of Standard Deduction

Nothing makes tax rules clearer than seeing them in action. Below are some simple illustrations showing how the deduction works for different taxpayers.

Example 1: Mid-Level Salaried Employee

• Gross annual salary: ₹8,00,000
• Regime chosen: New tax regime (FY 2024-25)
• Standard deduction: ₹75,000
• Taxable salary: ₹7,25,000

Here, the individual automatically saves tax on ₹75,000. Compared to the old regime’s ₹50,000 deduction, this provides an additional tax benefit of ₹25,000. At the 20% slab rate, that equals ₹5,000 saved.

Example 2: Pensioner with Annual Pension of ₹5,40,000

• Gross pension: ₹5,40,000
• Standard deduction: ₹50,000 (old regime) or ₹75,000 (new regime)
• Taxable pension: ₹4,90,000 or ₹4,65,000

Since pension income is treated as salary, the taxpayer enjoys the same relief. If the new regime is chosen, tax savings are greater, especially if the pensioner has no other deductions like 80C or 80D.

Example 3: Low-Income Salary

• Gross salary: ₹40,000 per year
• Standard deduction allowed: Only up to ₹40,000 (cannot exceed salary)
• Taxable salary: Nil

This shows that the deduction is capped at your salary amount. If your income is below the deduction threshold, the benefit is limited accordingly.

Example 4: High-Income Employee

• Gross annual salary: ₹20,00,000
• Standard deduction: ₹50,000 (old regime) / ₹75,000 (new regime)
• Taxable salary: ₹19,50,000 or ₹19,25,000

While the relief is relatively small compared to total income, the higher deduction under the new regime still makes a difference of ₹25,000 in taxable income.

Comparative Table: Taxable Salary Under Both Regimes

Why Examples Matter

These scenarios show how the standard deduction under Section 16(ia) gives guaranteed relief, regardless of your income level. For middle-class taxpayers, the higher deduction under the new regime can tip the balance in its favor. However, whether the old or new regime is better overall still depends on the other exemptions and deductions you may be eligible for.

For anyone unsure, the Income Tax Department’s comparison tool can help simulate both regimes side by side.

Caveats and Points to Watch Out For

While the standard deduction under Section 16(ia) is simple to understand, there are some nuances every taxpayer should keep in mind.

• Legislative drafting gap: The higher deduction of ₹75,000 in the new regime is currently linked to Section 115BAC(1A)(ii). From AY 2026-27, this clause will change, which may create ambiguity unless the government issues a correction.
• Cap on deduction: If your salary or pension is less than ₹50,000 or ₹75,000, you cannot claim the full amount. It is restricted to your actual income.
• One deduction per taxpayer: Even if you worked for multiple employers in the same financial year, you can claim the standard deduction only once.
• Self-employed not eligible: The benefit is exclusive to salaried employees and pensioners. Business or professional income earners cannot claim it.
• Impact on tax regime choice: While the new regime offers a higher deduction, it disallows popular deductions like HRA, LTA, 80C investments, and 80D health insurance. Always compare both regimes before filing.

For up-to-date details, keep an eye on notifications on the official Income Tax website.

Conclusion

The standard deduction under Section 16(ia) is one of the simplest and most beneficial provisions for salaried employees and pensioners in India. For FY 2024-25, it provides:

• ₹50,000 deduction in the old tax regime
• ₹75,000 deduction in the new tax regime

This deduction directly reduces taxable income, requires no paperwork, and ensures tax relief for millions of individuals.

As tax laws evolve, especially with the drafting concern for AY 2026-27, it is important to keep track of updates and verify figures each year. To make the right choice between old and new regimes, you can try tools like the income tax calculator and check your Form-16 carefully.

Key Takeaway

Every salaried employee and pensioner should understand and claim this deduction. It is a guaranteed tax benefit—small for some, substantial for others—but always worth using.

If you’d like to stay updated on similar tax changes, consider subscribing to reliable newsletters or financial portals that track Union Budget announcements and Income Tax notifications.

FAQ

What is the standard deduction under Section 16(ia)?

The standard deduction under Section 16(ia) is a flat tax relief of ₹50,000 in the old regime or ₹75,000 in the new regime for FY 2024-25, available to salaried employees and pensioners.

Is the standard deduction available in both old and new regimes?

Yes. From FY 2020-21 onward, it applies to both regimes. For FY 2024-25, the deduction is ₹50,000 in the old regime and ₹75,000 in the new regime.

Do pensioners get the standard deduction under Section 16(ia)?

Yes. Pension income is treated as salary, so pensioners can claim it. However, family pensioners get a separate deduction under Section 57.

Do I need to submit any bills or proof for standard deduction?

No documents are needed. The deduction is automatic and reflected in Form-16 or ITR, without requiring bills or medical receipts.

Can self-employed individuals claim the standard deduction?

No. The deduction under Section 16(ia) is available only to salaried employees and pensioners, not for business or professional income.

How does the standard deduction affect TDS?

Employers reduce salary by the deduction amount before calculating TDS. It is shown in Form-16 under “Deductions under Section 16.”