Understand the standard deduction for salaried employees and pensioners in AY 2025-26. Compare old vs. new tax regimes, see tax-saving examples, and learn how to claim deductions. Get complete insights with step-by-step guidance.
The standard deduction is a crucial tax benefit available to salaried employees and pensioners in India. Introduced as a replacement for transport allowance and medical reimbursement, this deduction helps taxpayers reduce their taxable income, ultimately lowering their tax liability. It is a flat deduction, meaning it applies to all eligible individuals regardless of their actual expenses, simplifying the tax calculation process.
For salaried employees, the standard deduction on salary ensures that a portion of their income is exempt from taxation, leading to higher take-home pay. Similarly, pensioners—who rely on fixed post-retirement income—also benefit from this deduction, reducing their overall tax burden.
With Assessment Year (AY) 2025-26, the standard deduction limit remains unchanged, offering different benefits under the old and new tax regimes. While the old regime continues with a ₹50,000 deduction, the new tax regime, after Budget 2023, allows a ₹75,000 deduction for salaried employees and pensioners with an annual income exceeding ₹15.5 lakh.
This article will provide a detailed breakdown of standard deduction rules for AY 2025-26, covering eligibility, tax benefits, calculation examples, and guidelines on claiming the deduction. Whether you are a working professional or a retired individual, understanding these tax benefits can help you make informed financial decisions while filing your Income Tax Return (ITR).
What is Standard Deduction?
Definition of Standard Deduction
The standard deduction is a fixed tax deduction available to salaried employees and pensioners to reduce their taxable income. Unlike other deductions that require proof of expenses, the standard deduction is granted automatically and does not require any supporting documents or bills. This deduction simplifies tax calculations and provides financial relief to individuals earning a salary or pension.
How Standard Deduction Replaced Transport Allowance & Medical Reimbursement
Before the reintroduction of the standard deduction in Budget 2018, salaried individuals were eligible for:
- Transport Allowance – Rs. 19,200 per year
- Medical Reimbursement – Rs. 15,000 per year
These exemptions required employees to submit bills for medical reimbursement, making the process cumbersome. To simplify tax benefits, the government replaced these allowances with a flat standard deduction of Rs. 40,000 in 2018. This limit was later increased to Rs. 50,000 in Budget 2019, benefiting both salaried employees and pensioners.
Eligibility Criteria for Standard Deduction
The standard deduction is available to:
- Salaried Employees – Individuals earning a salary from an employer, including private and government sector employees.
- Pensioners – Retired individuals receiving a pension from their previous employer (as pension income is taxed under "Income from Salary").
However, the standard deduction does not apply to:
- Self-Employed Professionals & Business Owners – Since their income is categorized under "Income from Business or Profession," they cannot claim this deduction.
- Family Pensioners – Individuals receiving a family pension can claim a different deduction of Rs. 15,000 or one-third of the pension amount, whichever is lower, but not the standard deduction.
The standard deduction applies automatically while filing Income Tax Returns (ITR) and is reflected in Form 16, ensuring ease of compliance for taxpayers.
Standard Deduction for Salaried Employees in AY 2025-26
Salaried employees can claim the standard deduction to reduce their taxable income, thereby lowering their overall tax liability. However, the amount of deduction differs based on whether the taxpayer opts for the old tax regime or the new tax regime under the Income Tax Act.
Old vs. New Tax Regime: Key Differences
The Indian tax system offers two regimes for taxpayers:
- Old Tax Regime: Allows taxpayers to claim various deductions and exemptions, including the standard deduction, HRA (House Rent Allowance), Section 80C benefits, and more.
- New Tax Regime: Features lower tax slab rates but restricts most deductions and exemptions. However, the standard deduction is allowed under this regime.
Standard Deduction Limit for AY 2025-26
For Assessment Year (AY) 2025-26, the standard deduction remains unchanged from the previous year. The limits are as follows:
| Tax Regime | Standard Deduction Limit |
|---|---|
| Old Tax Regime | Rs. 50,000 |
| New Tax Regime | Rs. 50,000 (for income below Rs. 15.5 lakh) |
| Rs. 75,000 (for income above Rs. 15.5 lakh) |
Example Calculations: Tax Savings with Standard Deduction
Let us consider a few scenarios to understand how the standard deduction impacts tax calculations under both tax regimes.
Example 1: Employee with Rs. 8,00,000 Annual Income
| Particulars | Old Tax Regime | New Tax Regime |
|---|---|---|
| Gross Salary | Rs. 8,00,000 | Rs. 8,00,000 |
| Standard Deduction | Rs. 50,000 | Rs. 50,000 |
| Taxable Income | Rs. 7,50,000 | Rs. 7,50,000 |
| Approx. Tax Payable (Before Rebates) | Rs. 52,500 | Rs. 39,000 |
Example 2: Employee with Rs. 16,00,000 Annual Income
| Particulars | Old Tax Regime | New Tax Regime |
|---|---|---|
| Gross Salary | Rs. 16,00,000 | Rs. 16,00,000 |
| Standard Deduction | Rs. 50,000 | Rs. 75,000 |
| Taxable Income | Rs. 15,50,000 | Rs. 15,25,000 |
| Approx. Tax Payable (Before Rebates) | Rs. 2,62,500 | Rs. 2,31,000 |
Key Takeaways
- The old tax regime allows for Rs. 50,000 deduction along with other exemptions and deductions.
- The new tax regime allows for Rs. 50,000 deduction if total income is below Rs. 15.5 lakh and Rs. 75,000 deduction if income exceeds this threshold.
- Choosing between tax regimes depends on individual tax planning, as the new regime has lower tax rates but fewer deductions, while the old regime allows more tax-saving benefits.
Taxpayers should evaluate both options before filing their Income Tax Return (ITR) to maximize savings.
Standard Deduction for Pensioners in AY 2025-26
The standard deduction is not only available to salaried employees but also to pensioners receiving a pension from their previous employer. This deduction helps retired individuals reduce their taxable income, leading to lower tax liability.
Eligibility for Retired Individuals Receiving a Pension
- Retired individuals who receive a pension from their former employer are eligible for the standard deduction, as pension income is considered "Income from Salary" under the Income Tax Act.
- The deduction is applicable regardless of the amount of pension received.
- It applies to both government and private sector retirees who receive a regular pension.
Does Standard Deduction Apply to Family Pensioners?
- Family pension is received by the legal heirs of a deceased pensioner, such as a spouse, children, or dependent parents.
- Unlike a regular pension, family pension is taxed under "Income from Other Sources" and not under "Income from Salary."
- Due to this classification, family pensioners are not eligible for the standard deduction.
- However, family pensioners can claim a separate deduction of Rs. 15,000 or one-third of the pension amount, whichever is lower, under Section 57(iia) of the Income Tax Act.
Tax Benefits for Senior Citizens and Super Senior Citizens
The standard deduction benefits senior citizens (aged 60 years and above) and super senior citizens (aged 80 years and above) by reducing their taxable income. In addition to the standard deduction, they enjoy additional tax benefits:
1. Higher Basic Exemption Limits
| Category | Basic Exemption Limit |
|---|---|
| Individuals below 60 years | Rs. 2,50,000 |
| Senior Citizens (60-79 years) | Rs. 3,00,000 |
| Super Senior Citizens (80+ years) | Rs. 5,00,000 |
- Super senior citizens filing under the old tax regime do not need to pay tax if their total income is within Rs. 5 lakh.
- Under Section 87A, both senior and super senior citizens can claim a rebate of up to Rs. 12,500 if their total taxable income does not exceed Rs. 5 lakh.
2. Exemption from Filing ITR in Certain Cases
- Senior citizens aged 75 and above with only pension and interest income from the same bank are exempt from filing ITR, as per provisions introduced in Budget 2021.
- However, the bank must deduct applicable TDS before crediting the pension.
Key Takeaways
- Retired individuals receiving a pension from their employer can claim the standard deduction of Rs. 50,000 under both tax regimes.
- Family pensioners cannot claim the standard deduction but are eligible for a separate Rs. 15,000 deduction under Section 57(iia).
- Senior citizens and super senior citizens benefit from higher tax exemption limits and rebates, reducing their tax burden.
- Individuals aged 75 and above may not need to file ITR if they meet specific conditions.
By leveraging these deductions and exemptions, pensioners can optimize their tax savings and ensure compliance with tax laws for Assessment Year 2025-26.
Is Standard Deduction Available in the New Tax Regime?
The standard deduction was initially available only under the old tax regime, but after Budget 2023, it was extended to the new tax regime as well. This move provided some relief to taxpayers opting for the new regime, which otherwise restricts most deductions and exemptions.
Standard Deduction Under the New Tax Regime
For Assessment Year (AY) 2025-26, salaried employees and pensioners opting for the new tax regime can claim the following standard deduction:
- Rs. 50,000 for individuals with a salary or pension income below Rs. 15.5 lakh.
- Rs. 75,000 for individuals with a salary or pension income above Rs. 15.5 lakh.
Advantages and Disadvantages of Choosing the New Tax Regime
The new tax regime offers lower tax slab rates, but it also removes several deductions and exemptions available under the old regime. Below is a comparison of the advantages and disadvantages of opting for the new tax regime:
Advantages of the New Tax Regime
✔ Lower Tax Rates: The new tax regime offers reduced slab rates compared to the old regime.
✔ Simplified Tax Filing: Since most deductions and exemptions are removed, the tax filing process is easier and requires less documentation.
✔ Beneficial for High-Income Earners: For individuals with income above Rs. 15.5 lakh, the Rs. 75,000 standard deduction provides additional tax relief.
Disadvantages of the New Tax Regime
✘ No Other Deductions and Exemptions: Taxpayers cannot claim HRA (House Rent Allowance), LTA (Leave Travel Allowance), 80C investments, 80D medical insurance, or any other deductions except the standard deduction.
✘ May Not Benefit All Individuals: Those with multiple investments and expenses eligible for deductions under the old regime may find it less beneficial to switch to the new regime.
✘ Not Suitable for Low and Middle-Income Groups: Salaried individuals with moderate income who claim multiple deductions (such as 80C, 80D, home loan interest, etc.) might end up paying higher tax under the new regime.
Which Tax Regime Should You Choose?
The choice between the old and new tax regimes depends on individual financial situations.
- If an individual has substantial deductions and exemptions, the old tax regime may be more beneficial.
- If an individual prefers simplified tax filing with lower rates and has minimal deductions, the new tax regime may be a better choice.
Taxpayers should compare their total tax liability under both regimes before making a decision. Calculators like the Income Tax Calculator on HR Calcy can help assess which regime is more beneficial.
Standard Deduction Rules for Senior Citizens & Super Senior Citizens
Senior citizens and super senior citizens in India receive additional tax benefits that help reduce their taxable income. Along with the standard deduction, they enjoy higher basic exemption limits and rebates, making tax filing more favorable for them.
Additional Tax Benefits for Senior Citizens
In addition to the Rs. 50,000 standard deduction available to pensioners and salaried individuals, senior citizens are entitled to the following tax benefits:
-
Higher Basic Exemption Limits
- Senior citizens (aged 60-79) have a basic exemption limit of Rs. 3 lakh, compared to Rs. 2.5 lakh for individuals below 60 years.
- Super senior citizens (aged 80 and above) have a basic exemption limit of Rs. 5 lakh, meaning they pay zero tax if their total income does not exceed this amount.
-
Rebate under Section 87A
- Senior citizens with a taxable income up to Rs. 5 lakh can claim a rebate of up to Rs. 12,500, ensuring they pay no tax.
- This applies under both the old and new tax regimes.
-
Exemption from Filing ITR for Individuals Aged 75+
- Senior citizens aged 75 and above who have only pension and interest income from the same bank are exempt from filing an Income Tax Return (ITR).
- However, the bank must deduct TDS on their behalf before crediting the pension amount.
-
Higher Deduction Limits for Medical Insurance & Treatment
- Under Section 80D, senior citizens can claim a deduction of up to Rs. 50,000 on medical insurance premiums.
- If a super senior citizen does not have health insurance, they can claim a medical expense deduction of Rs. 50,000.
- Under Section 80DDB, senior citizens can claim up to Rs. 1 lakh for medical treatment of specified diseases.
Income Tax Slabs for Senior Citizens & Super Senior Citizens
The tax slabs for senior and super senior citizens differ under the old tax regime, while the new regime has the same slabs for all age groups.
Old Tax Regime – AY 2025-26
| Taxable Income | Individuals Below 60 Years | Senior Citizens (60-79 Years) | Super Senior Citizens (80+ Years) |
|---|---|---|---|
| Up to Rs. 2,50,000 | Nil | Nil | Nil |
| Rs. 2,50,001 – Rs. 3,00,000 | 5% | Nil | Nil |
| Rs. 3,00,001 – Rs. 5,00,000 | 5% | 5% | Nil |
| Rs. 5,00,001 – Rs. 10,00,000 | 20% | 20% | 20% |
| Above Rs. 10,00,000 | 30% | 30% | 30% |
New Tax Regime – AY 2025-26 (Same for All Age Groups)
| Taxable Income | Tax Rate |
|---|---|
| Up to Rs. 3,00,000 | Nil |
| Rs. 3,00,001 – Rs. 6,00,000 | 5% |
| Rs. 6,00,001 – Rs. 9,00,000 | 10% |
| Rs. 9,00,001 – Rs. 12,00,000 | 15% |
| Rs. 12,00,001 – Rs. 15,00,000 | 20% |
| Above Rs. 15,00,000 | 30% |
Example Scenarios Showing Tax Savings with Standard Deduction
Example 1: Senior Citizen Choosing the Old Regime
- Annual Pension Income: Rs. 8,00,000
- Standard Deduction: Rs. 50,000
- Taxable Income After Deduction: Rs. 7,50,000
- Tax Calculation (Old Regime):
- Rs. 3,00,000 – Rs. 5,00,000 → 5% on Rs. 2,00,000 = Rs. 10,000
- Rs. 5,00,001 – Rs. 7,50,000 → 20% on Rs. 2,50,000 = Rs. 50,000
- Total Tax Payable Before Rebate = Rs. 60,000
- Eligible for Section 87A Rebate (if taxable income ≤ Rs. 5,00,000) → No rebate applicable
- Final Tax Payable = Rs. 60,000
Example 2: Super Senior Citizen with Rs. 7 Lakh Pension Income (Old Regime)
- Annual Pension Income: Rs. 7,00,000
- Standard Deduction: Rs. 50,000
- Taxable Income After Deduction: Rs. 6,50,000
- Tax Calculation (Old Regime):
- Rs. 5,00,001 – Rs. 6,50,000 → 20% on Rs. 1,50,000 = Rs. 30,000
- Final Tax Payable = Rs. 30,000
Key Takeaways
- Senior citizens (60-79 years) and super senior citizens (80+ years) benefit from higher exemption limits and rebates.
- Standard deduction of Rs. 50,000 applies to pensioners under both tax regimes.
- Super senior citizens with income up to Rs. 5 lakh pay zero tax under the old regime.
- Medical expense deductions under Sections 80D and 80DDB offer additional savings.
Senior citizens should compare the tax liability under both regimes before choosing the most beneficial option for AY 2025-26.
Standard Deduction Calculation Examples
Understanding how the standard deduction impacts taxable income and tax liability is crucial for salaried employees and pensioners. Below are detailed case studies demonstrating tax calculations under different scenarios.
Case 1: Salaried Employee Under Old & New Regime
Scenario: A salaried employee earning Rs. 10,00,000 annually
| Particulars | Old Tax Regime (Rs.) | New Tax Regime (Rs.) |
|---|---|---|
| Gross Salary | 10,00,000 | 10,00,000 |
| Standard Deduction | 50,000 | 75,000 |
| Taxable Income | 9,50,000 | 9,25,000 |
| Tax Calculation | 5% on Rs. 2,50,000 = 12,500 20% on Rs. 5,00,000 = 1,00,000 |
5% on Rs. 3,00,000 = 15,000 10% on Rs. 3,25,000 = 32,500 |
| Total Tax Before Rebate | 1,12,500 | 47,500 |
| Deductions Under 80C, 80D, etc. | 1,50,000 | Not Allowed |
| Final Tax Payable | 62,500 | 47,500 |
Key Takeaways
- The new tax regime provides a higher standard deduction (Rs. 75,000) but does not allow other deductions.
- The old tax regime provides lower standard deduction (Rs. 50,000) but allows additional deductions under Sections 80C, 80D, etc.
- Choosing the best regime depends on individual tax planning strategies.
Case 2: Senior Citizen Pensioner
Scenario: A senior citizen pensioner (age 65) earning Rs. 7,50,000 annually
| Particulars | Old Tax Regime (Rs.) | New Tax Regime (Rs.) |
|---|---|---|
| Pension Income | 7,50,000 | 7,50,000 |
| Standard Deduction | 50,000 | 75,000 |
| Taxable Income | 7,00,000 | 6,75,000 |
| Tax Calculation | 5% on Rs. 2,00,000 = 10,000 20% on Rs. 2,00,000 = 40,000 |
5% on Rs. 3,00,000 = 15,000 10% on Rs. 1,75,000 = 17,500 |
| Total Tax Before Rebate | 50,000 | 32,500 |
| Section 87A Rebate (If Applicable) | Not Applicable | Not Applicable |
| Final Tax Payable | 50,000 | 32,500 |
Key Takeaways
- The new tax regime provides slightly better tax savings due to the higher standard deduction.
- If the pensioner had other deductions (80C, 80D, etc.), the old regime might still be beneficial.
Case 3: Super Senior Citizen with Pension & Other Income
Scenario: A super senior citizen (age 82) earning Rs. 8,00,000 from pension and Rs. 2,00,000 from FD interest
| Particulars | Old Tax Regime (Rs.) | New Tax Regime (Rs.) |
|---|---|---|
| Pension Income | 8,00,000 | 8,00,000 |
| Interest Income | 2,00,000 | 2,00,000 |
| Standard Deduction | 50,000 | 75,000 |
| Taxable Income | 9,50,000 | 9,25,000 |
| Tax Calculation | 20% on Rs. 4,50,000 = 90,000 | 5% on Rs. 3,00,000 = 15,000 10% on Rs. 3,25,000 = 32,500 |
| Total Tax Before Rebate | 90,000 | 47,500 |
| Section 80TTB Deduction (Interest Income) | 50,000 | Not Allowed |
| Final Tax Payable | 40,000 | 47,500 |
Key Takeaways
- Super senior citizens benefit significantly from the old tax regime due to the higher exemption limit (Rs. 5,00,000) and deductions like 80TTB.
- The new tax regime is less favorable because it does not allow Section 80TTB deductions for interest income.
- The new tax regime benefits salaried employees and pensioners due to a higher standard deduction of Rs. 75,000.
- Senior citizens and super senior citizens may find the old tax regime more beneficial due to additional tax rebates and exemptions.
- Selecting the right tax regime depends on individual income, deductions, and financial planning needs.
How to Claim Standard Deduction?
Claiming the standard deduction is a simple process for both salaried employees and pensioners. Below is a step-by-step guide on how to claim it while filing your Income Tax Return (ITR).
Step-by-Step Process to Claim Standard Deduction in ITR
For Salaried Employees
-
Verify Salary Slip & Form 16
- The employer deducts the standard deduction while computing taxable income.
- Check Form 16, as the deduction is already included in the total salary calculations.
-
Choose the Right ITR Form
- If you have only salary income, use ITR-1 (Sahaj).
- If you have additional sources of income, use ITR-2 or ITR-3 as applicable.
-
Enter Salary Income in ITR Portal
- Under the “Income from Salary” section, enter the gross salary as per Form 16.
- The system automatically applies the standard deduction (Rs. 50,000 under the old regime and Rs. 75,000 under the new regime).
-
Review and Submit
- Check the pre-filled details on the Income Tax e-filing portal.
- Verify tax calculations before submission.
For Pensioners
Pension income is classified under "Income from Salary" for tax purposes, allowing pensioners to claim the standard deduction.
-
Check Pension Slip & Form 16A
- Pension received from an employer is treated as salary income, and Form 16A may reflect this.
-
Report Pension Under ‘Salary’ Section in ITR
- In the ITR form, enter pension details under ‘Income from Salary’, not under ‘Income from Other Sources’.
- The standard deduction is automatically applied.
-
For Family Pensioners
- Family pension is taxed under "Income from Other Sources" instead of salary.
- Standard deduction is NOT available for family pensioners. However, they can claim a deduction of Rs. 15,000 or one-third of the pension amount (whichever is lower) under Section 57(iia).
Key Takeaways
- No separate proof or documents are required to claim the standard deduction.
- It is auto-applied in the tax calculation under both the old and new tax regimes.
- Pensioners can claim it just like salaried employees, but family pensioners have a different deduction limit.
- Check Form 16/Form 16A carefully to ensure correct deductions before filing ITR.
Conclusion & Final Takeaways
The standard deduction plays a crucial role in reducing taxable income for salaried employees and pensioners, ensuring tax relief across different income groups. Whether you are a working professional or a retired individual, understanding how this deduction applies under the old and new tax regimes can help optimize your tax planning.
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| Standard Deduction for Salaried Employees and Pensioners |
Key Takeaways
- Fixed Deduction for All: Salaried employees and pensioners can claim Rs. 50,000 under the old tax regime and Rs. 75,000 under the new tax regime (for AY 2025-26).
- No Proof Required: The deduction is automatically included in Form 16, making the filing process easier.
- Senior Citizens Benefit More: Pensioners, including senior and super senior citizens, can claim the standard deduction just like salaried individuals. However, family pensioners have a separate deduction limit under Section 57(iia).
- Choosing the Right Tax Regime Matters: The new tax regime offers a higher deduction but removes many exemptions. Taxpayers should evaluate their total tax liability before making a choice.
Plan Your Taxes Smartly
To calculate your tax savings and make informed financial decisions, use our free tax calculators on HR Calcy.
For official guidelines and further details, refer to:
- Income Tax Department – Standard Deduction Rules
- Trusted finance websites offering tax insights and planning strategies.
By leveraging tax-saving opportunities and staying updated on policy changes, taxpayers can maximize their income and minimize tax burdens efficiently.
FAQ
Can I claim both standard deduction and other exemptions?
Under the old tax regime, you can claim standard deduction along with other exemptions and deductions, such as HRA (House Rent Allowance), LTA (Leave Travel Allowance), and deductions under Section 80C, 80D, etc. Under the new tax regime, most exemptions and deductions are not allowed. However, the standard deduction is automatically available (Rs. 75,000 for salaried and pensioners).
Does standard deduction apply to freelancers or self-employed individuals?
No, standard deduction is applicable only to salaried employees and pensioners. Freelancers and self-employed individuals cannot claim this benefit but can deduct business expenses related to their work under the applicable provisions of the Income Tax Act.
Will the government increase the standard deduction in the future?
The last revision happened in Budget 2023, where the standard deduction was extended to the new tax regime and increased to Rs. 75,000 for certain income groups. Any future changes depend on government policies and inflation adjustments. The upcoming budgets may introduce revisions based on economic conditions.
What are the standard deduction rules for government employees?
Government employees receive the same standard deduction as private sector employees:
- Rs. 50,000 under the old tax regime
- Rs. 75,000 under the new tax regime
If a government employee receives a pension after retirement, it is treated as salary income, making them eligible for the same deduction as salaried individuals.