| 📅 Updated as on: 17 May 2026 | ⚡ Subject to amendment — verify at incometax.gov.in |
The standard deduction is one of the most universally beneficial provisions in Indian income tax law. Unlike most deductions — which require investments, insurance policies, or housing loans — the standard deduction requires nothing. No documentation. No proof of expenses. No investment decision. It is an automatic, flat reduction from gross salary income before tax is computed.
From Tax Year 2026-27, the standard deduction continues under the Income Tax Act, 2025 — but the amount you get depends entirely on which tax regime you choose. The new tax regime gives you Rs.75,000. The old regime gives you Rs.50,000. This difference has a direct impact on your taxable income and, for salaried employees earning up to Rs.12.75 lakh, determines whether you pay any income tax at all.
This blog covers the standard deduction under the new Act — the amounts, the legal basis, who is eligible, and how the two regimes compare.
Part 1 — Standard Deduction Under the Old Act (Section 16)
| 📌 SECTION 16(ia) — INCOME TAX ACT, 1961 — STANDARD DEDUCTION Standard deduction available to salaried individuals and pensioners: OLD REGIME (Section 115BAC not opted): Standard deduction: Rs.50,000 or actual salary, whichever is lower. Applicable from AY 2019-20 onwards (introduced to replace transport and medical allowances). NEW REGIME (Section 115BAC opted — from AY 2025-26): Standard deduction: Rs.75,000 or actual salary, whichever is lower. Increased from Rs.50,000 to Rs.75,000 by Finance (No.2) Act, 2024. Government clarified this in Taxation Laws (Amendment) Bill, 2025. FAMILY PENSION (Section 57(iia)): Standard deduction for family pensioners: Rs.25,000 Increased from Rs.15,000 by Finance Act 2025 (effective AY 2025-26). Available to: Salaried employees and pensioners (receiving pension from former employer). Not available to: Freelancers, business owners, commission agents, rental income earners. Documents required: NONE — flat deduction, no proof needed. |
Part 2 — Standard Deduction Under the New Act (Section 202)
| 📌 SECTION 202 — INCOME TAX ACT, 2025 — NEW TAX REGIME AND STANDARD DEDUCTION Section 202 of the Income Tax Act, 2025 is the equivalent of old Section 115BAC. It governs the new tax regime for individuals, HUFs, and other specified entities. Standard deduction under Section 202 (new Act): NEW REGIME (Section 202 — default regime from Tax Year 2026-27): Standard deduction: Rs.75,000 or actual salary, whichever is lower. No documentation required. Available to salaried employees and pensioners. Family pension standard deduction: Rs.25,000 OLD REGIME (opting out of Section 202): Standard deduction: Rs.50,000 or actual salary, whichever is lower. Remains unchanged from old Act position. EFFECTIVE TAX-FREE INCOME (new regime, Tax Year 2026-27): Basic exemption: Rs.12,00,000 (tax rebate under Section 87A equivalent) Standard deduction: Rs.75,000 Effective tax-free: Rs.12,75,000 for salaried individuals in new regime. NOTE: Section 202 is not relevant for AY 2026-27 ITR (FY 2025-26 income). AY 2026-27 is still governed by old Act — Section 115BAC applies. Section 202 applies from Tax Year 2026-27 (income from 1 April 2026). |
Part 3 — Complete Comparison: Old Regime vs New Regime
| Parameter | Old Regime | New Regime | Changed? |
| Standard deduction — Salaried | Rs.50,000 | Rs.75,000 | Changed |
| Standard deduction — Pensioners | Rs.50,000 | Rs.75,000 | Changed |
| Family pension deduction | Rs.25,000 | Rs.25,000 | Same |
| Documents required | None | None | Same |
| Limit — multiple employers | Rs.50,000 (annual) | Rs.75,000 (annual) | Changed |
| Available to freelancers | No | No | Same |
| Available to business owners | No | No | Same |
| Available to commission agents | No | No | Same |
| HRA exemption available | Yes | No | Same |
| Section 80C deduction available | Yes | No | Same |
| Section 80D deduction available | Yes | No | Same |
| Home loan interest (Section 24) | Yes | No | Same |
| Basic exemption limit | Rs.2.5 lakh | Rs.4 lakh | Changed |
| Tax-free income (salaried) | Up to Rs.7.5 lakh* | Up to Rs.12.75 lakh | Changed |
| Default regime | Must opt in | Default from TY 2026-27 | Changed |
| Section reference (old Act) | Section 16(ia) | Section 115BAC | Changed |
| Section reference (new Act) | Section 16(ia) equivalent | Section 202 | Changed |
*Old regime tax-free amount depends on deductions claimed. Up to Rs.7.5 lakh with 80C + standard deduction only.
Part 4 — Practical Examples
| 📊 Example 1 — Salaried Employee, Rs.10 lakh salary, New Regime Gross salary: Rs.10,00,000 Less: Standard deduction: Rs. 75,000 Taxable salary income: Rs. 9,25,000 → Tax on Rs.9,25,000 under new regime slabs = Rs.42,500 + 4% cess = Rs.44,200 → With Section 87A rebate: No tax payable (income below Rs.12 lakh threshold) (Rebate available since taxable income Rs.9,25,000 is below Rs.12 lakh) Tax-free income: Rs.12,75,000 for salaried in new regime (Rs.12L + Rs.75K standard deduction) |
| 📊 Example 2 — Salaried Employee, Rs.10 lakh salary, Old Regime Gross salary: Rs.10,00,000 Less: Standard deduction: Rs. 50,000 Less: Section 80C (max): Rs. 1,50,000 Less: Section 80D (health): Rs. 25,000 Taxable income: Rs. 7,75,000 → Tax on Rs.7,75,000 under old regime slabs = approx. Rs.75,000 + 4% cess = Rs.78,000 → Compare with new regime tax: Rs.0 (below Rs.12.75 lakh with standard deduction) → At Rs.10 lakh salary: New regime is clearly better without large deductions. → At Rs.15 lakh salary with Rs.3.5 lakh deductions: old regime may be better. Consult a CA to compute the optimal regime for your specific income and deductions. |
| 📊 Example 3 — Employee with Two Employers During Tax Year 2026-27 Employer A (April 2026 – September 2026): Salary Rs.4,80,000 Employer B (October 2026 – March 2027): Salary Rs.6,00,000 Total salary for Tax Year 2026-27: Rs.10,80,000 → Standard deduction available: Rs.75,000 (new regime) — ONCE for the full year. NOT Rs.75,000 per employer. The limit is annual, not per-employer. → Employer B (last employer) will typically provide the standard deduction in their computation. → At ITR filing: claim Rs.75,000 total standard deduction on full Rs.10,80,000 salary. |
Part 5 — Who Is and Is Not Eligible
Eligible for Standard Deduction
- Salaried employees receiving salary from any employer — including private sector, government, public sector, MNCs
- Pensioners receiving pension from their former employer — standard deduction available at same limits
- Employees receiving salary from multiple employers during the year — overall annual limit applies
- Employees on notice period receiving salary — eligible for actual period of salary receipt
- Senior citizens receiving pension from former employer — eligible at Rs.75,000 (new regime)
NOT Eligible for Standard Deduction
- Freelancers and consultants — income is business/profession income, not salary
- Business owners and partners — business income, not salary
- Commission agents — commission income is not salary
- Directors receiving only sitting fees — director fees are not salary (TDS under Code 1028)
- Family pensioners — family pension is “income from other sources”, not salary; separate Rs.25,000 deduction under Section 57(iia) applies
| ✅ ACTION: If you are receiving salary from two employers, ensure your last employer has accounted for the full Rs.75,000 standard deduction in their TDS computation for the year. At ITR filing, claim exactly Rs.75,000 — not more — regardless of number of employers. |
Part 6 — The Drafting Issue — Resolved
There was a technical drafting issue in the Finance (No.2) Act, 2024 regarding the Rs.75,000 standard deduction. The proviso to Section 16(ia) specified the higher deduction only in reference to clause (ii) of Section 115BAC(1A), which technically applied only to AY 2025-26, potentially reverting the deduction to Rs.50,000 for AY 2026-27.
This issue has been addressed. The Government clarified through Finance Minister Nirmala Sitharaman’s statement that Rs.75,000 standard deduction applies for salaried individuals under the new regime. The Taxation Laws (Amendment) Bill, 2025 explicitly incorporated this clarification, and the provision is embedded in Section 202 of the Income Tax Act, 2025 which governs Tax Year 2026-27 onwards.
| ⚠️ NOTE: For AY 2026-27 (FY 2025-26 income — old Act): Standard deduction under new regime is Rs.75,000 as clarified by Government and incorporated in the Income Tax Act, 2025. For Tax Year 2026-27 (new Act): Rs.75,000 under new regime, Rs.50,000 under old regime, as per Section 202. |
Part 7 — Regime Decision Framework
The standard deduction difference (Rs.75,000 vs Rs.50,000) is just one factor in the old vs new regime decision. The complete framework:
- Below Rs.7.5 lakh salary: New regime almost always better — lower rates, higher exemption, no investment needed.
- Rs.7.5 lakh to Rs.12.75 lakh: New regime typically better — effective tax-free with rebate + standard deduction.
- Rs.12.75 lakh to Rs.18 lakh: Depends on total deductions. If 80C, HRA, home loan together exceed Rs.3-3.5 lakh — compare both regimes.
- Above Rs.18 lakh with large deductions: Old regime may benefit if total deductions are very high. Run the computation.
- No investments, rented accommodation, no home loan: New regime almost always better at any income level.
| ✅ ACTION: Run your specific computation both ways before choosing a regime for Tax Year 2026-27. Your CA or Fimaco can compute optimal regime selection based on your actual deductions. Once you choose the old regime (opt out of Section 202), you cannot switch back mid-year. |
Key Takeaways
- Standard deduction continues under the Income Tax Act, 2025 (Section 202 for new regime).
- New regime (default from Tax Year 2026-27): Rs.75,000 standard deduction.
- Old regime: Rs.50,000 standard deduction — unchanged.
- Family pension: Rs.25,000 deduction under Section 57(iia) — applicable in both regimes.
- Effective tax-free income for salaried under new regime: Rs.12,75,000 (Rs.12L rebate + Rs.75K standard deduction).
- Annual limit — not per employer. Multiple employers in one year: Rs.75,000 total, not per employer.
- No documents required for standard deduction — flat benefit for all eligible salaried employees and pensioners.
- Freelancers, business owners, commission agents: not eligible for standard deduction.
- The drafting issue regarding Rs.75,000 for AY 2026-27 has been resolved in the new Act (Section 202).
Frequently Asked Questions
| Q: I earn Rs.12 lakh salary. Under the new regime, do I pay any tax? A: Effectively no. Under the new regime for Tax Year 2026-27, the standard deduction of Rs.75,000 reduces your taxable income to Rs.11,25,000. The tax rebate under Section 87A equivalent of the new Act provides zero tax liability for taxable income up to Rs.12 lakh. Since Rs.11,25,000 is below Rs.12 lakh, no tax is payable. Your tax-free income as a salaried employee in the new regime is effectively Rs.12,75,000. Q: I worked for two employers this year. Can I claim Rs.75,000 from each? A: No. The standard deduction is Rs.75,000 for the entire Tax Year — not per employer. If you had two employers during Tax Year 2026-27, the total standard deduction remains Rs.75,000. Your last employer typically accounts for it in their TDS computation. At ITR filing, claim exactly Rs.75,000 total regardless of the number of employers during the year. Q: I am a freelancer earning Rs.15 lakh. Can I claim the standard deduction? A: No. Standard deduction is available only to salaried employees and pensioners — it is a deduction from salary income. Freelancers’ income is business or professional income, not salary income. You are not eligible for the Rs.75,000 standard deduction. You can instead claim actual business expenses as deductions from your professional income under the general deduction provisions of the new Act. Q: My mother receives family pension from my late father’s employer. What standard deduction applies? A: Family pensioners are eligible for a deduction of Rs.25,000 under Section 57(iia) — available under both old and new regime. Family pension is taxed as “income from other sources” (not salary), so the Rs.75,000/50,000 salary standard deduction does not apply. The Rs.25,000 deduction (increased from Rs.15,000 by Finance Act 2025) provides the equivalent benefit. Q: Should I choose the new regime or old regime for Tax Year 2026-27? A: It depends on your income level, deductions, and investments. The new regime (Rs.75,000 standard deduction, lower slabs, no other deductions) is better for most salaried employees earning up to Rs.12.75 lakh and for those with few deductions at higher incomes. The old regime (Rs.50,000 standard deduction plus HRA, 80C, home loan etc.) may benefit those with very high total deductions above Rs.3-4 lakh. Run the full computation under both regimes. Contact Fimaco for personalised tax planning at fimaco.in/contact. |
| Standard deduction: Rs.75,000 (new regime) | Rs.50,000 (old regime) | Tax Year 2026-27 Legal basis: Section 202, Income Tax Act 2025 (new regime) | Section 16(ia) equivalent (old regime) Family pension: Rs.25,000 under Section 57(iia) — both regimes Effective tax-free income: Rs.12,75,000 (salaried, new regime with rebate) Limit is annual — not per employer. Multiple employers: Rs.75,000 total. No documents required — automatic flat deduction. Not available to freelancers, business owners, commission agents. Drafting issue on Rs.75,000 resolved — confirmed in Section 202, IT Act 2025. |
⚠ DISCLAIMER This article is published for general informational and educational purposes only and does not constitute legal, tax, or professional advice. The provisions of the Income Tax Act, 2025, Income Tax Act, 1961, and Finance Acts are subject to amendment at any time. Standard deduction limits, section references, and regime details reflect the law as understood on the date of publication. The drafting issue regarding Rs.75,000 applicability for AY 2026-27 has been addressed in the new Income Tax Act 2025 and the Taxation Laws (Amendment) Bill 2025, but readers should verify the current position from official sources. Readers are strongly advised to verify all provisions from the official Income Tax portal (incometax.gov.in) and consult a qualified Chartered Accountant before making any regime or investment decisions. For professional support, contact us at info@fimaco.in or visit fimaco.in.