Standard Deduction of Rs 75,000 in the New Tax Regime: What Salaried and Pensioners Should Know

For most salaried taxpayers the single most valuable line in the Income-tax Act 1961 is one they never have to apply for. The standard deduction under Section 16(ia) is a flat reduction of salary income that needs no bills, no rent receipts and no investment proof. From Assessment Year 2025-26 the Finance (No. 2) Act 2024 raised this deduction inside the new tax regime from Rs 50,000 to Rs 75,000, and that Rs 25,000 increase is the quiet reason a salaried person can now earn up to Rs 12.75 lakh a year without paying a single rupee of income tax.

This morning's tip walks through exactly what the statute says, works a numeric example on a Rs 13.5 lakh salary, lists the mistakes that trigger Section 143(1)(a) adjustments, and answers the seven questions we are asked most often. If you want to test the numbers on your own package, keep the income tax calculator open in a second tab.

What the Section Says

Section 16(ia) of the Income-tax Act 1961 allows a deduction from income chargeable under the head Salaries of "fifty thousand rupees or the amount of the salary, whichever is less." For the new tax regime, Section 115BAC(1A) read with the Finance (No. 2) Act 2024 substitutes a higher figure of Rs 75,000, effective from AY 2025-26 (the year in which the income of FY 2024-25 is assessed). The old regime figure stays at Rs 50,000.

Three features of the deduction matter in practice. First, it is unconditional: unlike House Rent Allowance or Section 80C, you submit no evidence and the assessing officer cannot disallow it for want of proof. Second, it is capped at the salary itself, so a person with only Rs 40,000 of salary income gets a Rs 40,000 deduction, not Rs 75,000. Third, it is a per-person annual ceiling, not a per-employer figure, a point that trips up job-switchers every filing season.

Crucially, the deduction is available to pensioners. A pension paid by a former employer is charged to tax under the head Salaries, so a retired employee drawing pension can claim the full Rs 75,000 in the new regime for AY 2025-26. This is confirmed in the Income Tax Department's own guidance on allowances allowed to a salaried employee. Family pension, taxed under Income from Other Sources, has its own separate deduction under Section 57 and is outside the scope of Section 16(ia).

The table below sets out how the two regimes compare for the current assessment year.

Because the new regime is the default regime from FY 2023-24 onwards, a salaried employee who takes no action and files under the default is automatically entitled to the Rs 75,000 figure, not the older Rs 50,000. Use the new regime calculator to see the deduction applied against the FY 2025-26 slabs.

Worked Example

Consider Priya, a marketing manager with a gross annual salary of Rs 13,50,000 in FY 2025-26 who files under the default new regime. Her tax is computed in two steps: first arrive at net taxable salary, then apply the slabs.

Step one is the standard deduction. Gross salary of Rs 13,50,000 minus the Rs 75,000 Section 16(ia) deduction leaves net taxable income of Rs 12,75,000. Step two applies the FY 2025-26 new regime slabs to that Rs 12,75,000, as shown below.

Priya's net taxable income of Rs 12,75,000 exceeds the Rs 12,00,000 rebate threshold, so the Section 87A rebate of up to Rs 60,000 does not apply to her, and she pays Rs 74,100 after the 4% cess.

Now watch what the deduction does at a lower salary. Had Priya's gross salary been exactly Rs 12,75,000, the same Rs 75,000 deduction would have brought her net income to Rs 12,00,000. Tax on Rs 12,00,000 under the slabs is Rs 60,000 (Rs 20,000 plus Rs 40,000), and the Section 87A rebate of Rs 60,000 for FY 2025-26 wipes it out entirely. That is the arithmetic behind the widely quoted claim that salary up to Rs 12.75 lakh is tax-free in the new regime: Rs 12 lakh of rebate-covered income plus the Rs 75,000 standard deduction. Read our explainer on the tax rebate to see how the Rs 60,000 figure for FY 2025-26 is applied.

Common Mistakes

The standard deduction looks simple, yet it is a recurring source of Section 143(1)(a) prima facie adjustments because taxpayers apply it in situations the statute does not permit. The four errors below appear routinely in processing.

Claiming Rs 75,000 twice after a mid-year job change is the most frequent. If Priya moved employers in October 2025, each employer may have granted the Rs 75,000 in its own Form 16, but the annual ceiling is a single Rs 75,000. Adding both Form 16 figures inflates the deduction to Rs 1,50,000, and the Centralised Processing Centre disallows the excess automatically. When you hold two Form 16s, cap the total deduction at Rs 75,000.

Applying the deduction against non-salary income is the second error. The Section 16(ia) deduction attaches only to income under the head Salaries. It cannot be set against business income, capital gains, house property income or interest income. A freelancer with only Section 44ADA professional receipts has no salary and therefore no standard deduction.

Using the wrong figure for the regime is the third. Some FY 2024-25 do-it-yourself filings still carry Rs 50,000 into a new-regime return, understating the deduction by Rs 25,000, while others wrongly put Rs 75,000 into an old-regime computation. The correct pairing is Rs 75,000 with the new regime and Rs 50,000 with the old regime for AY 2025-26. Our old versus new comparison tool applies the right figure automatically once you pick a regime.

The fourth is over-claiming on a small salary. A retired person with Rs 55,000 of pension income can deduct only Rs 55,000, not Rs 75,000, because Section 16(ia) is limited to the amount of salary. Employers running payroll should also confirm the deduction flows correctly into quarterly TDS; our note on TDS on salary covers how the deduction feeds Form 24Q.

FAQ

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

No. The Rs 75,000 figure applies only to the new regime under Section 115BAC(1A) from AY 2025-26. In the old regime the standard deduction under Section 16(ia) remains Rs 50,000, a figure unchanged since AY 2020-21.

Can pensioners claim the standard deduction?

Yes. Pension from a former employer is taxable under the head Salaries, so a pensioner filing under the new regime claims the full Rs 75,000 for AY 2025-26. Family pension, taxed under Other Sources, instead gets the separate Section 57 deduction and is not covered by Section 16(ia).

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

No. The Section 16(ia) deduction is absolute and unconditional. Unlike the Section 80C limit of Rs 1,50,000, it needs no receipts and is applied automatically against salary in your return.

Does the standard deduction reduce my taxable salary or my tax directly?

It reduces taxable salary. You subtract Rs 75,000 from gross salary to reach income chargeable under Salaries. It is not a credit against tax; that role is played by the Section 87A rebate of up to Rs 60,000.

What is the maximum salary that stays tax-free in the new regime for FY 2025-26?

Rs 12,75,000 of gross salary. The Rs 75,000 standard deduction brings net income to Rs 12,00,000, and the Section 87A rebate of Rs 60,000 then eliminates the Rs 60,000 of tax on that Rs 12,00,000.

If I switch jobs mid-year, can I claim Rs 75,000 with each employer?

No. The Rs 75,000 is a single annual ceiling per taxpayer for AY 2025-26, not per employer. Claiming it against two Form 16s is a leading cause of Section 143(1)(a) adjustments.

Where does the increase from Rs 50,000 to Rs 75,000 come from?

The Finance (No. 2) Act 2024 amended the proviso to Section 115BAC(1A) to raise the new-regime standard deduction to Rs 75,000 with effect from AY 2025-26, while leaving the old-regime Section 16(ia) figure at Rs 50,000.