Standard Deduction Rs 75,000 in New Regime: What Changed in Budget 2025

The Finance (No. 2) Act, 2024 raised the standard deduction available to salaried taxpayers and pensioners under the new tax regime from Rs 50,000 to Rs 75,000, a 50% jump that flows directly into take-home calculations for FY 2025-26 (assessment year 2026-27). Section 16(ia) of the Income-tax Act, 1961 governs this deduction; the parallel benefit for family pensioners under Section 57(iia) was simultaneously revised from Rs 15,000 to Rs 25,000. Both increases were carried forward unchanged in the Finance Act, 2025.

The change is regime-specific. Anyone filing under Section 115BAC (the new default regime since FY 2023-24) gets Rs 75,000; anyone who opts out into the old regime retains Rs 50,000. The 50% jump is a quiet but meaningful nudge - for a taxpayer in the 30% slab the extra slice of deduction translates to Rs 7,800 of additional tax saved (at 31.2%, including 4% health and education cess). When stacked against the loss of HRA, LTA, and Chapter VI-A deductions in the new regime, the higher standard deduction is the government's offset for moving people away from the old structure. (Note: the Section 87A rebate is separately capped at Rs 60,000 in the new regime for FY 2025-26 with a Rs 12 lakh taxable-income threshold - the standard deduction figures discussed here are unrelated to that rebate.)

This morning's tip walks through what changed, who benefits most, and where the Rs 75,000 number interacts with other line items on Form 16. Authoritative reference: the Income Tax Department portal at incometax.gov.in and the bare statute at indiacode.nic.in.

What the Section Says

Section 16(ia) of the Income-tax Act, 1961 - inserted by the Finance Act, 2018 - originally allowed a flat Rs 40,000 standard deduction against salary income, with no requirement to produce bills or proof. The Finance Act, 2019 raised it to Rs 50,000, and the Finance (No. 2) Act, 2024 created the regime split: Rs 75,000 for taxpayers in the Section 115BAC default regime, Rs 50,000 for those electing the old regime. The deduction is automatic - it does not require receipts, declarations, or Form 12BB entries.

Three eligibility points matter:

Note that 80CCD(1B), the additional Rs 50,000 NPS sub-ceiling, is available only in the old regime - it does NOT carry into the new regime under Section 115BAC. The same applies to 80C and 80D. The deduction is available to every salaried individual whose employer issues a Form 16 - tenure, contract type, or grade do not matter. Pensioners receiving pension from a former employer (treated as salary under Section 17(1)(ii) of the Income-tax Act, 1961) also qualify for the Rs 75,000. Family pensioners - persons receiving pension on the death of an employee - claim the lower Rs 25,000 under Section 57(iia), because family pension is taxed under "Income from Other Sources", not "Salaries".

Crucially, the deduction is fixed and is applied automatically by the employer when computing salary TDS under Section 192. If your gross salary is Rs 9,75,000 in FY 2025-26 and you are in the new regime, your taxable salary head reads Rs 9,00,000 - already comfortably below the Rs 12,00,000 Section 87A threshold (rebate cap Rs 60,000 in new regime), so net tax payable is zero.

Worked Example: Rs 10L, Rs 15L, Rs 20L Salary in FY 2025-26

To make the impact concrete, consider three salaried profiles - all aged 35, drawing only salary income, no other heads. The new-regime slabs under Section 115BAC for FY 2025-26 are: nil up to Rs 4 lakh, 5% from Rs 4-8 lakh, 10% from Rs 8-12 lakh, 15% from Rs 12-16 lakh, 20% from Rs 16-20 lakh, 25% from Rs 20-24 lakh, and 30% above Rs 24 lakh. The Section 87A rebate of Rs 60,000 wipes out tax up to taxable income of Rs 12 lakh in the new regime.

For the Rs 10 lakh worker, the Rs 75,000 standard deduction drags taxable income from Rs 10 lakh down to Rs 9.25 lakh, well within the Rs 12 lakh Section 87A rebate ceiling - meaning zero tax payable. Had the deduction stayed at Rs 50,000, taxable income would still be Rs 9.5 lakh, also within the rebate ceiling, so the marginal benefit at this income level is psychological rather than monetary. The picture changes at Rs 15 lakh: the additional standard deduction (Rs 75K minus Rs 50K) sits in the 15% slab, saving Rs 3,900 in tax (at 15.6% effective with cess). At Rs 20 lakh, the same extra slice sits in the 20% slab, saving Rs 5,200.

Compare this to the old regime. Because Section 80C, 80D, and 80CCD(1B) are NOT available under the new regime under Section 115BAC, the comparison is regime-vs-regime, not deduction stacking. The same Rs 15 lakh earner, claiming Rs 50,000 standard deduction plus Rs 1,50,000 under Section 80C, Rs 50,000 under 80CCD(1B) - again, an old-regime-only deduction not available in the new regime - and Rs 50,000 under 80D, gets to taxable income of Rs 12,00,000. Tax of Rs 1,72,500 plus 4% cess equals Rs 1,79,400. The new regime, with no investment-linked deductions but the higher standard deduction and the Rs 60,000 Section 87A rebate buffer, comes in at Rs 97,500 - a saving of Rs 81,900 even after all old-regime deductions are exhausted, and even before HRA is considered. Run your own numbers on the old vs new regime calculator before the FY 2025-26 ITR filing window opens on 1 April 2026.

For taxpayers above Rs 50 lakh, surcharge enters: 10% from Rs 50L to Rs 1 crore, 15% from Rs 1 crore to Rs 2 crore, and capped at 25% beyond Rs 2 crore in the new regime. The standard deduction continues to apply regardless of surcharge tier, and the same Rs 75,000 is subtracted from gross salary before slab tax is computed.

Common Mistakes

The Rs 75,000 deduction is mechanical, but five errors recur in CPC Bengaluru intimations issued under Section 143(1) and scrutiny notices under Section 143(2). Our walk-through of the Section 143(2) scrutiny notice process covers the response workflow if you receive one.

Mistake 1: Claiming Rs 75,000 in the old regime. Form 16 issued by employers who default to the new regime (the statutory default under Section 115BAC since FY 2023-24) shows Rs 75,000. If the employee then files ITR in the old regime - say, to claim Section 80C, HRA, and home-loan interest - they must manually correct the standard deduction to Rs 50,000 in the salary schedule. The CPC system flags the standard-deduction mismatch automatically; the resulting demand notice typically carries interest under Sections 234B and 234C.

Mistake 2: Double-counting standard deduction across two employers. A taxpayer who switches jobs mid-year often gets two Form 16s, each showing Rs 75,000. The aggregate deduction in the ITR remains Rs 75,000 (or Rs 50,000 in the old regime), not Rs 1,50,000. The previous employer's Form 16 must be supplied to the new employer under Section 192(2) at the time of joining, but tax-prep software still picks up both Form 16 figures - check the "Income from Salary" schedule before submitting.

Mistake 3: Family pensioner claiming Rs 75,000 instead of the lower deduction. Family pension is taxable under "Income from Other Sources", not "Salaries". The deduction available is one-third of the pension or Rs 25,000, whichever is lower (under the new regime); Rs 15,000 in the old regime. Many ITR-1 filers wrongly enter family pension under the salary head and claim the higher Rs 75,000 deduction; this is a common cause of refund delay and Section 139(9) defective return notices.

Mistake 4: Treating arrears as eligible for a separate Rs 75,000. When salary arrears are received and Section 89(1) relief is claimed using Form 10E, the standard deduction is not multiplied. There is one Rs 75,000 deduction per assessment year against the salary head, regardless of how many years the arrears relate to. The relief is computed on the recomputed tax after applying the single Rs 75,000.

Mistake 5: Forgetting professional tax under Section 16(iii). Section 16(iii) allows a separate deduction for professional tax actually paid (typically Rs 2,500 in Maharashtra, Karnataka, West Bengal). This is in addition to the Rs 75,000 standard deduction under Section 16(ia) - they do not overlap, but Section 16(iii) is often missed entirely when the new regime is chosen, even though it remains available in both regimes.

For the precise computation flow, walk through the income tax calculator with your Form 16 figures and cross-check against the new regime calculator.

FAQ

Is the Rs 75,000 standard deduction available to pensioners?

Yes. Pension received from a former employer is taxed under the "Salaries" head per Section 17(1)(ii) of the Income-tax Act, 1961, so pensioners qualify for the full Rs 75,000 under Section 16(ia) in the new regime. Family pensioners receiving pension on the death of an employee are different - they claim the lower Rs 25,000 deduction under Section 57(iia) because family pension is taxed under "Income from Other Sources".

Can I claim standard deduction if my only income is freelance or professional fees?

No. Standard deduction under Section 16(ia) applies strictly to "Salaries" - that is, income arising from an employer-employee relationship. Professional fees received by a freelancer or consultant are taxable under "Profits and Gains of Business or Profession" (Section 28), where actual expenses are deducted against gross receipts instead. Presumptive taxpayers under Section 44ADA also do not get a separate Rs 75,000 - the 50% presumptive deduction is the equivalent.

Does the Rs 75,000 affect the Section 87A rebate calculation?

Yes, and crucially so. The Rs 12 lakh threshold for the Rs 60,000 rebate under Section 87A in the new regime is computed after standard deduction. A salaried taxpayer with gross salary of Rs 12,75,000 has taxable income of Rs 12,00,000 after the Rs 75,000 deduction - which is exactly at the rebate ceiling and therefore pays zero tax (subject to the marginal relief mechanics covered in our Section 87A marginal relief explainer).

Is the standard deduction Rs 75,000 even if I worked only part of the year?

Yes. The deduction is a flat Rs 75,000 (new) or Rs 50,000 (old) regardless of months worked. A new joiner who started in November 2025 and earned Rs 5,00,000 in five months still gets the full Rs 75,000, taking taxable salary to Rs 4,25,000. The deduction is not pro-rated per month, and the same applies to mid-year retirements or resignations.

Can my employer compute TDS under Section 192 at the higher Rs 75,000?

Yes. CBDT guidance for salary TDS computation under Section 192 directs employers to apply the default new regime rates and the Rs 75,000 standard deduction unless the employee submits a written intimation electing the old regime for that financial year. The election can change year-on-year for non-business taxpayers; business and professional income filers must use Form 10-IEA and the choice is one-time-reversible.

Will the Rs 75,000 be raised again in Budget 2026?

No formal announcement has been made; the Finance Act, 2025 retained the Rs 75,000 / Rs 50,000 split unchanged. The next Union Budget is scheduled for 1 February 2026. Industry representations from CII and FICCI have asked for parity at Rs 1,00,000 across both regimes, but until a formal amendment is gazetted via the Finance Bill, taxpayers should plan FY 2026-27 with Rs 75,000 (new) as the working assumption.

Does the higher standard deduction interact with HRA, LTA, and food coupons?

Indirectly. HRA exemption under Section 10(13A), LTA under Section 10(5), and meal-voucher exemption under Rule 3(7)(iii) of the Income-tax Rules, 1962 are all unavailable in the new regime - so the Rs 75,000 standard deduction is the only salary-side relief left. In the old regime, you keep Rs 50,000 standard deduction plus all those allowances (HRA, LTA, 80C, 80D, 80CCD(1B) - the last three not allowed in the new regime). The arithmetic break-even is roughly Rs 3,00,000 of combined claims at a Rs 15 lakh salary; below that, the new regime wins.