New regime standard deduction: salaried taxpayers get Rs 75,000 under section 16(ia) for FY 2025-26

Salaried taxpayers filing for FY 2025-26 (assessment year 2026-27) get a flat Rs 75,000 knocked off their salary income under the new tax regime before a single rupee of tax is computed. That figure, the section 16(ia) standard deduction, was lifted from Rs 50,000 to Rs 75,000 by the Finance (No.2) Act 2024 and applies to every salaried individual and pensioner who stays in the default new regime under section 115BAC(1A)(iii). Unlike section 80C or 80D, it needs no investment, no receipts and no landlord PAN. It is a straight subtraction from gross salary, and for a large slice of middle-income earners it is the difference between a tax bill and a zero-tax return.

This is the most valuable deduction most salaried people never actively claim, because the payroll system and the pre-filled ITR apply it automatically. Understanding exactly how it works, how much it is worth in the new versus old regime, and where taxpayers trip up in scrutiny is worth a few minutes before you file.

What the Section Says

Section 16(ia) of the Income-tax Act, 1961 allows a deduction from income chargeable under the head "Salaries". It was inserted by the Finance Act 2018, which introduced the standard deduction at Rs 40,000, replacing the earlier transport allowance and medical reimbursement exemptions. The amount rose to Rs 50,000 from FY 2019-20, and the Finance (No.2) Act 2024 raised it again, but only for taxpayers under the new regime, to Rs 75,000 with effect from assessment year 2025-26.

The result is a two-track deduction that depends entirely on which regime you sit in:

Three statutory points matter. First, the deduction is a flat sum, not a percentage of salary, so it does not scale with a higher package. Second, it is capped at the actual salary if salary is lower than the deduction, meaning you cannot use it to create a loss. Third, from AY 2019-20 the Central Board of Direct Taxes clarified that pension received by a former employee is taxable under "Salaries", so pensioners draw the same Rs 75,000 under the new regime and Rs 50,000 under the old. Family pension is a separate head taxed as "Income from other sources" and gets its own deduction under section 57, not section 16(ia).

The new regime under section 115BAC is now the default; you must actively opt out to use the old regime. So unless a salaried taxpayer files Form 10-IEA to choose the old regime, the Rs 75,000 figure is the one that applies. You can read the department's own deduction list on incometax.gov.in and the bare section text on indiacode.nic.in.

It is also worth remembering what the standard deduction replaced. Before the Finance Act 2018, salaried employees claimed a transport allowance exemption of Rs 19,200 a year and a medical reimbursement exemption of up to Rs 15,000, both requiring bills and records. The Rs 40,000 standard deduction of 2018 folded those into one no-questions-asked figure, and every subsequent rise, to Rs 50,000 in FY 2019-20 and Rs 75,000 for the new regime in 2024, has widened that relief. The deduction reduces your gross total income, which is why it sits at the very top of the salary computation before slabs, rebate, surcharge or cess enter the picture.

Worked Example

Consider Priya, a salaried employee in Pune with a gross salary of Rs 12,75,000 for FY 2025-26, no other income, and no old-regime deductions worth claiming. She stays in the default new regime.

Her taxable salary is Rs 12,75,000 minus the Rs 75,000 standard deduction, which is exactly Rs 12,00,000. Applying the FY 2025-26 new regime slabs:

Because her taxable income is exactly Rs 12,00,000, she is inside the section 87A rebate threshold. Under FY 2025-26 the new regime rebate is up to Rs 60,000 for taxable income up to Rs 12,00,000, so her Rs 60,000 liability is wiped out entirely. With a 4% health and education cess applied to zero, Priya pays nil tax.

Now strip out the standard deduction. Her taxable income would be Rs 12,75,000, which crosses the Rs 12,00,000 rebate line into the Rs 12,00,000 to Rs 16,00,000 slab at 15%. Tax works out to Rs 71,250 before cess, and with the 4% cess her bill is Rs 74,100. The Rs 75,000 standard deduction is what pushes her below the rebate threshold and turns a Rs 74,100 liability into zero. That single flat deduction is worth the entire tax bill.

You can reproduce this on the income tax calculator or contrast the two regimes on the old vs new regime comparison. For a new-regime-only breakdown, the new regime calculator shows the deduction and slab math side by side.

For an old-regime taxpayer the arithmetic differs. The same Rs 12,75,000 salary less the Rs 50,000 old-regime standard deduction gives Rs 12,25,000, and after any 80C and 80D claims the old slabs and the smaller Rs 12,500 rebate (available only up to Rs 5,00,000 taxable income) apply. The higher Rs 75,000 deduction is one of several reasons the new regime now wins for most salaried filers without large housing loans or 80C commitments.

Common Mistakes

The standard deduction looks simple, but a handful of errors show up repeatedly in Income-tax Department processing and scrutiny.

Claiming Rs 75,000 in the old regime. The higher figure is exclusive to the new regime under section 115BAC. If you file Form 10-IEA to opt for the old regime, your standard deduction is Rs 50,000, not Rs 75,000. Claiming the larger amount in the old regime triggers an adjustment under section 143(1) and a demand notice.

Double-counting across two employers. If you changed jobs during FY 2025-26 and both employers issued a Form 16, each may have applied the standard deduction. The deduction is a single Rs 75,000 for the year, not per employer. Add both salaries, then subtract Rs 75,000 once. Understanding your Form 16 numbers prevents this.

Applying it to non-salary income. Section 16(ia) is a deduction from salary only. It cannot be set against interest income, rental income, capital gains or business receipts. A pensioner drawing a former-employer pension can claim it because that pension is "Salaries", but someone with only fixed-deposit interest cannot.

Forgetting it exists on a pension. Pensioners often assume the deduction is only for working employees. Both the Rs 75,000 new-regime and Rs 50,000 old-regime figures apply to employer pension. Family pension, taxed under "other sources", instead gets the section 57 deduction.

Confusing it with the rebate. The standard deduction reduces taxable income; the section 87A tax rebate reduces the tax itself. They stack, and as the worked example shows, the deduction can be exactly what drops you under the rebate ceiling.

FAQ

What is the standard deduction for salaried employees in FY 2025-26?

Under the new tax regime it is Rs 75,000, and under the old regime it is Rs 50,000. Both are claimed under section 16(ia) of the Income-tax Act, 1961 as a flat deduction from salary or pension income, with no proof or investment required.

Is the Rs 75,000 standard deduction available in the old regime?

No. The Rs 75,000 figure applies only under the new regime (section 115BAC). If you opt for the old regime by filing Form 10-IEA, your standard deduction stays at Rs 50,000.

Do pensioners get the standard deduction?

Yes. Pension from a former employer is taxed under the head "Salaries", so pensioners get Rs 75,000 in the new regime and Rs 50,000 in the old. Family pension is different and gets a separate deduction under section 57.

Can I claim the standard deduction on interest or rental income?

No. Section 16(ia) is a deduction from salary income only. Interest, rent, capital gains and business income are not eligible. The deduction cannot exceed your salary either, so it cannot create a loss.

How does the standard deduction interact with the section 87A rebate?

The standard deduction lowers your taxable income first; the section 87A rebate then reduces the tax. In FY 2025-26 the new-regime rebate is up to Rs 60,000 for taxable income up to Rs 12,00,000, so the Rs 75,000 deduction can pull you under that threshold and eliminate the tax entirely.

Do I need to claim the standard deduction manually?

Usually not. Employers apply it while computing tax deducted at source, and the pre-filled ITR carries it forward. Verify the amount matches your regime, especially if you changed jobs, because the deduction is a single figure for the year.

When was the standard deduction raised to Rs 75,000?

The Finance (No.2) Act 2024 raised it from Rs 50,000 to Rs 75,000 for new-regime taxpayers, effective from assessment year 2025-26 and continuing for FY 2025-26 (AY 2026-27). The old-regime figure of Rs 50,000, in place since FY 2019-20, was left unchanged.