What Is Standard Deduction in Income Tax (FY 2024-25 & FY 2025-26): Latest Rules, Benefits & Examples

Learn what standard deduction in income tax means, the latest FY 2024-25 & FY 2025-26 updates, eligibility for salaried and pensioners, new vs old regime rules, benefits, examples, and FAQs—all explained in simple terms.

Introduction

When it comes to paying income tax in India, one of the most common questions salaried individuals and pensioners ask is: what exactly is the standard deduction, and how does it reduce my tax burden?

The standard deduction is a flat, no-questions-asked reduction allowed from your salary or pension income. You don’t need to submit bills, proofs, or vouchers to claim it. For many taxpayers, this simple deduction can make a big difference in taxable income and final tax liability.

With the recent changes in the Union Budget, the standard deduction has become even more important—especially for those deciding between the old tax regime and the new tax regime. In this article, we’ll break down its meaning, eligibility, latest amounts for FY 2024-25 and FY 2025-26, how to claim it, examples, and key points to remember.

What Is Standard Deduction?

The standard deduction is a fixed reduction from taxable salary or pension income under Section 16(ia) of the Income-tax Act, 1961. It was introduced in Budget 2018 to simplify tax compliance by replacing multiple smaller exemptions such as conveyance allowance and medical reimbursement.

Key Features

• Flat reduction: You can claim it automatically without submitting any expense proof.
• Eligibility: Available to salaried individuals and pensioners (including family pension to a limited extent).
• Purpose: To reduce paperwork and provide basic relief against routine expenses like travel, medical needs, and inflation.

In simple terms, if your annual salary is ₹10,00,000 and the standard deduction is ₹75,000, then only ₹9,25,000 will be considered for tax calculation (before applying other deductions or exemptions).

Evolution of Standard Deduction in India

The concept of a fixed deduction from salary income has existed before, but it was reintroduced in 2018 after a long gap. Here’s how it has changed over the years:

The official Income Tax Department FAQs confirm that the deduction is allowed automatically without documentation.

Recent changes have made this benefit more generous, especially for pensioners and those opting for the new regime. However, a drafting oversight in the law may create issues for AY 2026-27 if not corrected, a point we’ll explore later in the article.

Why Was Standard Deduction Introduced?

The government’s intention was twofold:

1. Simplify tax filing – Instead of tracking conveyance bills or medical receipts, a flat deduction reduces compliance effort.
2. Provide equitable relief – All salaried taxpayers and pensioners get the same deduction, regardless of job role, industry, or employer policies.

By offering a straightforward benefit, the system ensures fairness while reducing disputes over allowance claims.

Standard Deduction Under Old vs New Tax Regime

The rules for standard deduction differ depending on whether you choose the old tax regime or the new tax regime. Understanding those differences is essential to picking the right option for your tax situation.

Key Differences: Old vs New Regime for Standard Deduction

Recent Update & Legislative Oversight

• As per the Finance (No. 2) Act, 2024, standard deduction was increased to ₹75,000 for salary and pension income under the new regime starting FY 2024-25.
• For family pension, the limit has been raised from ₹15,000 to ₹25,000 under the new regime.
• However, there is a drafting oversight in the law: the specific clause that allows ₹75,000 (Section 16(ia)) refers explicitly to clause (ii) of Section 115BAC(1A), which pertains to AY 2025-26, but omits clause (iii) which would correspond to AY 2026-27. This raises uncertainty whether ₹75,000 standard deduction will continue automatically for AY 2026-27 under the new regime without corrective legislation.

Which Regime Allows What — Comparison Table

Here’s a more detailed comparison showing what each regime gives you, especially focusing on standard deduction and related features:

Implications for Your Tax Liability

• If you have few deductions beyond the standard deduction, the new regime with ₹75,000 deduction might reduce your taxable income more easily and simplify filing.
• If you hold large deductions or exemptions (housing rent, home loan interest, investments u/s 80C etc.), the old regime might still be more beneficial despite lower standard deduction.
• Because of the drafting issue, for AY 2026-27, there is risk that the increased ₹75,000 deduction might not be applicable under new regime unless fixed by amendment. Tax-planning should take that potential into account.

How to Claim Standard Deduction

Claiming the standard deduction is straightforward. Unlike other deductions where you need receipts or investment proofs, this one is applied automatically once you report your salary or pension income in your Income Tax Return (ITR).

Step-by-Step Process

1. Get your Form 16 or Pension Statement
   • If you are a salaried employee, your employer will issue Form 16, which already includes the standard deduction in the taxable salary figure.
   • Pensioners can use the annual pension statement provided by their bank or disbursing authority.
2. Choose your tax regime
   • Decide whether you are filing under the old regime or the new regime. The standard deduction will be applied accordingly.
   • Remember: new regime is the default from FY 2023-24 onwards; you must actively opt out if you prefer the old regime.
3. Fill in ITR details
   • While filing online on the Income Tax e-filing portal, enter your gross salary or pension income.
   • The system will automatically adjust for the standard deduction amount based on the regime you choose.
4. Verify totals before submission
   • Always cross-check with your Form 16 or pension slip to ensure the correct deduction is reflected.

Do You Need to Submit Proofs?

No. This is one of the most taxpayer-friendly benefits. Unlike deductions under Section 80C or HRA exemption, you don’t need to submit any proof, receipts, or bills to claim standard deduction.

Your employer or the portal auto-applies it once income from salary or pension is reported. This makes it especially helpful for retired individuals who may not have multiple investment-related deductions to reduce taxable income.

What If Your Salary or Pension Is Less Than the Deduction?

A unique feature of this provision is that you can claim up to the amount of your salary or pension, whichever is lower.

For example:

• If your salary is ₹40,000 in a year, you cannot claim ₹50,000 or ₹75,000 as deduction. Instead, your deduction will be capped at ₹40,000.
• If your salary is ₹10,00,000, you can claim the full eligible standard deduction (₹50,000 under old regime or ₹75,000 under new regime).

This ensures fairness while preventing a negative taxable income purely from this deduction.

Documents to Keep Handy

Even though proofs are not required, you should keep some documents in case of verification:

• Form 16 for salaried individuals.
• Bank pension statement for retirees.
• ITR acknowledgment after filing.

While you won’t need to upload these documents, they act as supporting records if the tax department seeks clarifications later.

Why Standard Deduction Matters for Pensioners

For pensioners, standard deduction provides straightforward relief without needing to plan or invest in tax-saving instruments.

• Regular pension: Treated as salary income, so deduction applies.
• Family pension: Eligible for a reduced deduction (₹25,000 from FY 2024-25 onwards).

This adjustment recognizes that pensioners often lack other active income sources and makes tax compliance simpler. More details on pension-specific cases are also explained by SBI Pension Services.

Examples and Calculations of Standard Deduction

Nothing makes tax rules clearer than real-world numbers. Below are practical examples showing how the standard deduction works under both the old tax regime and the new tax regime.

Example 1: Salaried Individual (Old vs New Regime)

Assume:

• Annual Salary: ₹10,00,000
• No other deductions claimed (for simplicity)

Result:
The new regime offers a larger flat deduction (₹75,000 vs ₹50,000), reducing taxable income further. But whether it actually lowers total tax depends on your other exemptions and deductions.

Example 2: Pensioner

Assume:

• Annual Pension: ₹4,80,000
• No other income

Result:
The pensioner saves an additional ₹25,000 in taxable income under the new regime. This is particularly helpful for retirees who may not invest enough to claim 80C or 80D benefits under the old regime.

Example 3: Family Pension

For family pensioners, the deduction limit differs.

Assume:

• Annual Family Pension: ₹2,40,000

Result:
A dependent family member drawing pension after the death of a pensioner can now claim a higher deduction of ₹25,000 under the new regime from FY 2024-25.

Example 4: Low Salary Below Deduction Limit

Assume:

• Annual Salary: ₹40,000

In this case, the deduction will be limited to ₹40,000 itself (since it cannot exceed actual income). The taxable salary will become nil, and no tax will be payable.

This provision ensures fairness for employees with very small income while preventing misuse.

How It Impacts Take-Home Pay

By reducing taxable income, the standard deduction directly lowers your tax outgo. For someone in the 30% tax bracket, a ₹75,000 deduction translates into tax savings of up to ₹22,500 plus cess.

For updated slab rates under the new regime, you can check the Income Tax India portal or compare through calculators available on ClearTax.

Common Pitfalls and Key Things to Know

While the standard deduction is straightforward, there are a few important details and mistakes taxpayers often overlook. Knowing these can help you avoid errors during filing.

1. Drafting Oversight in the Law

As discussed earlier, the Finance (No. 2) Act, 2024 increased the deduction to ₹75,000 under the new regime from FY 2024-25. However, the language of Section 16(ia) refers only to clause (ii) of Section 115BAC(1A), which applies to AY 2025-26, but misses clause (iii) covering AY 2026-27.

Unless the government issues a clarificatory amendment, this technical slip could mean that the ₹75,000 deduction will not automatically continue under the new regime beyond AY 2025-26. Tax experts expect a correction in the upcoming budget, but it’s wise to track official updates on the Income Tax India website before finalizing your planning.

2. Not Applicable to All Income Types

The deduction applies only to income classified under “Salaries” and certain pension income. It cannot be claimed against:

• Business or professional income
• Rental income from house property
• Capital gains
• Interest income

This is a frequent misconception, especially for retirees with multiple income streams.

3. Interaction with Other Deductions

• Under the old regime, the standard deduction is available along with other deductions like 80C (investments), 80D (medical insurance), and HRA exemption.
• Under the new regime, most exemptions and deductions are not allowed. The standard deduction is one of the few benefits that continue.

For example, if you rely heavily on home loan interest deductions or HRA, the old regime may still give you better tax savings despite a smaller standard deduction. A comparison using a tax calculator from Economic Times can be helpful.

4. Salary Below Deduction Limit

As noted earlier, if your salary or pension is less than the deduction amount, the benefit is limited to your actual income. You cannot carry forward or claim excess deduction.

5. Standard Deduction and Section 87A Rebate

Even after applying standard deduction, if your net taxable income is within the rebate limit of Section 87A (currently ₹7,00,000 under the new regime), you will not pay any tax.

This means the deduction is especially valuable for middle-income earners, as it helps bring taxable income closer to the rebate threshold.

6. Importance for Employers

Employers automatically factor the standard deduction into salary calculations when issuing Form 16. If you notice it missing, it may be due to incorrect payroll configuration. In that case, you can still claim it directly while filing your ITR.

Conclusion

The standard deduction in income tax is one of the simplest and most beneficial provisions for salaried individuals and pensioners. By reducing taxable income automatically, it helps taxpayers save without paperwork or complicated calculations.

For FY 2024-25 and FY 2025-26, the deduction stands at ₹50,000 under the old regime and ₹75,000 under the new regime for salary and pension income. Family pensioners also benefit with a ₹25,000 deduction under the new regime.

However, taxpayers should remain aware of the legislative drafting issue that could affect AY 2026-27. Keeping track of official updates and clarifications will ensure you make the right choice between the old and new regime.

When planning your taxes, it’s wise to compare both regimes carefully, especially if you have significant exemptions or deductions in addition to the standard deduction. You can use tools like the income tax calculator on ClearTax or consult a qualified tax professional for tailored advice.

Final Note

The standard deduction is here to stay as an essential relief for salaried taxpayers and retirees. By understanding its rules, amounts, and applicability under each regime, you can make informed decisions, reduce your tax burden, and file your returns with confidence.

If you’d like to stay updated with future tax changes, consider subscribing to newsletters from trusted financial portals or checking the Income Tax India website regularly.

FAQ

Is standard deduction available under the new tax regime?

Yes. From FY 2024-25, salaried taxpayers and pensioners can claim ₹75,000 as standard deduction under the new regime. Family pensioners get ₹25,000.

What is the standard deduction for FY 2024-25 and FY 2025-26?

For FY 2024-25 and FY 2025-26, the deduction is ₹50,000 under the old regime and ₹75,000 under the new regime. Family pension gets ₹25,000 under the new regime.

Can pensioners claim standard deduction?

Yes. Regular pension is treated as salary, so pensioners can claim the full deduction. Family pensioners are eligible for a reduced deduction of ₹25,000.

Do I need to show proof for claiming standard deduction?

No. Standard deduction is applied automatically based on reported salary or pension income. No receipts or bills are needed.

Does standard deduction reduce HRA or other allowances?

No. Under the old regime, you can claim HRA and other deductions along with standard deduction. Under the new regime, most exemptions are removed but standard deduction continues.

What if my salary is lower than the standard deduction limit?

If your salary or pension is lower than the deduction limit, the deduction is restricted to your actual income. You cannot claim more than you earn.