The Union Budget 2024 increased the standard deduction for salaried employees and pensioners from Rs 50,000 to Rs 75,000 under Section 16(ia) of the Income Tax Act, effective from FY 2024-25 onwards. This deduction continues to apply in FY 2026-27 under both the old and new tax regimes, making it a universal benefit for every salaried taxpayer. The Rs 25,000 increase translates to a direct reduction in taxable income, but the actual monetary benefit depends on the taxpayer's marginal tax rate.
Tax Saving by Income Bracket
For employees in the 5% tax bracket (taxable income between Rs 4 lakh and Rs 8 lakh under the new regime), the additional Rs 25,000 deduction saves Rs 1,300 per year (Rs 1,250 tax plus Rs 50 cess). For those in the 10% bracket (Rs 8-12 lakh), the saving is Rs 2,600. At the 20% bracket (Rs 16-20 lakh under the new regime), the annual saving rises to Rs 5,200. For top-bracket earners at 30% (above Rs 24 lakh under new regime or above Rs 10 lakh under old regime), the maximum annual benefit is Rs 7,800 (Rs 7,500 tax plus Rs 300 cess).
When translated to monthly take-home pay, the increase is Rs 108 to Rs 650 per month depending on the tax bracket. While the absolute amount may appear modest, the standard deduction is a flat benefit requiring no investment, documentation, or proof of expenditure. It is automatically applied by the employer during TDS computation, ensuring the benefit flows through immediately in monthly salary payments.
Interaction With the New Regime Nil-Tax Threshold
Under the new regime post Budget 2026, the nil-tax ceiling for salaried individuals is effectively Rs 12.75 lakh, not Rs 12 lakh. This is because the Rs 12 lakh threshold is the taxable income after the standard deduction of Rs 75,000. So a salaried individual with a gross salary of up to Rs 12,75,000 pays zero tax under the new regime due to the combined effect of the Rs 75,000 standard deduction and the Section 87A rebate on income up to Rs 12 lakh.
This distinction is important for employees whose salary falls close to the threshold. An employee earning Rs 12.5 lakh gross salary would have a taxable income of Rs 11.75 lakh after the standard deduction, well below the Rs 12 lakh rebate limit, and would pay zero tax. Without the enhanced standard deduction, the same employee would have taxable income of Rs 12 lakh, and the rebate would just barely apply. The Rs 75,000 standard deduction thus provides a meaningful cushion for borderline cases.
Standard Deduction for Pensioners
The standard deduction is available not only to salaried employees but also to pensioners receiving a pension from their former employer. Family pension, however, is classified as income from other sources and qualifies for a separate deduction of Rs 15,000 or one-third of the pension, whichever is lower, under Section 57(iia). Senior citizens (60-80 years) and super senior citizens (above 80 years) who receive employer pension benefit from the full Rs 75,000 standard deduction in addition to the higher basic exemption limits available under the old regime.
Impact on Form 16 and ITR Filing
Employers are required to factor in the Rs 75,000 standard deduction when computing TDS on salary under Section 192. This deduction should appear clearly in Part B of Form 16 under the head "Deductions under Section 16." If your Form 16 still shows only Rs 50,000 as the standard deduction, this is an error that needs to be corrected by the employer through a revised TDS filing. When filing your ITR, verify that the standard deduction amount pre-filled from Form 16 data shows Rs 75,000. The income tax e-filing portal for AY 2027-28 has been updated to reflect this figure by default.
For employees evaluating the old vs new regime decision, the standard deduction of Rs 75,000 is available under both regimes and therefore does not tilt the comparison in either direction. The regime choice should be based on other deductions and exemptions such as 80C, 80D, HRA, and home loan interest, which are exclusive to the old regime. Use the Oquilia Salary Breakup Calculator to see exactly how the Rs 75,000 standard deduction flows through your salary computation and affects your monthly TDS.
Source
Section 16(ia) of the Income Tax Act, Finance Act 2024, CBDT Clarification