Introduction

For decades, salaried employees in India felt short-changed compared to business owners. A business owner could deduct their travel, electricity, and even tea expenses from their income before paying tax. A salaried employee, however, pays tax on the gross receipt, regardless of how much they spend on commuting or upgrading their skills.

To bridge this gap, the government reintroduced the "Standard Deduction" in 2018. It is a flat deduction subtracted from your salary income before calculating tax. No bills, no proofs, no questions asked.

In 2025, this tool will have become the centerpiece of the government's push towards the New Tax Regime. With the limit now hiked to ₹75,000 for the New Regime while staying at ₹50,000 for the Old, your choice of regime directly impacts your taxable income. In this guide, we will break down the exact deduction limits for employees, retirees, and family pensioners for the Financial Year 2025-26.

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Table of Contents

1. What is Standard Deduction?
2. Limit for FY 2025-26: New vs Old Regime
3. Who is Eligible to Claim Standard Deduction?
4. Standard Deduction for Pensioners (Retirees)
5. Standard Deduction for Family Pensioners (2025 Update)
6. Standard Deduction vs Section 80TTB (Don't Confuse Them)
7. How to Claim Standard Deduction in ITR
8. Is Standard Deduction Available to Business Owners?
9. Impact on TDS Deduction
10. FAQs

What is Standard Deduction?

Standard Deduction (under Section 16(ia)) is a flat amount that can be deducted from your "Income from Salary" or "Income from Pension."

Unlike HRA or LTA, this deduction is not tied to any actual expenditure. You do not need to submit rent receipts or travel tickets. Whether you spend ₹0 or ₹1 Lakh on your job-related needs, the government grants you this fixed relief to lower your tax burden.

Limit for FY 2025-26: New vs Old Regime

The Finance Act, 2024 (applicable for FY 2025-26 / AY 2026-27), created a clear distinction between the two regimes to make the New Regime more attractive.

1. New Tax Regime (Default)

• Deduction Limit: ₹75,000.
• Benefit: If your salary is ₹12,75,000, you first subtract ₹75,000. Your taxable income becomes ₹12,00,000. Since income up to ₹12 Lakh is tax-free (due to the Section 87A rebate), you pay Zero Tax.

2. Old Tax Regime

• Deduction Limit: ₹50,000.
• Benefit: It remains unchanged. You subtract ₹50,000 from your gross salary and then claim other deductions like 80C, HRA, etc.

Who is Eligible to Claim Standard Deduction?

You are eligible if you have income chargeable under the head "Salaries." This includes:

1. Salaried Employees: Private or Government sector.
2. Pensioners: Retirees receiving a monthly pension from their former employer.

Note: Consultants or Freelancers generally cannot claim this because their income falls under "Profits and Gains from Business/Profession." However, they can claim actual business expenses.

Standard Deduction for Pensioners (Retirees)

Many retirees are confused about whether the "Standard Deduction" applies to them.

• Yes, it applies. The pension you receive from your employer is treated as "Salary" for tax purposes.

• Limit: Same as employees.

  1. New Regime: ₹75,000.
  2. Old Regime: ₹50,000.

Example: Mr. Sharma (Age 65) receives a pension of ₹6 Lakhs. Under the New Regime, his taxable pension is ₹5.25 Lakhs (₹6L - ₹75k). Under the Old Regime, it is ₹5.50 Lakhs (₹6L - ₹50k).

Standard Deduction for Family Pensioners (2025 Update)

Family Pension is different from a regular pension. It is paid to the dependents (widow/widower/children) after the employee's death. It is taxed under "Income from Other Sources," not Salary.

Therefore, Section 16(ia) does not apply. Instead, a special deduction under Section 57(iia) applies.

Updated Limits for FY 2025-26:

• New Tax Regime: Deduction is ₹25,000 OR 33.33% of the pension, whichever is lower.
• Old Tax Regime: Deduction is ₹15,000 OR 33.33% of the pension, whichever is lower.

Example (New Regime): Mrs. Gupta receives a family pension of ₹1,00,000.

• 33.33% of ₹1L = ₹33,333.
• Limit = ₹25,000.
• Deduction Allowed = ₹25,000. Taxable Pension = ₹75,000.

Standard Deduction vs Section 80TTB (Don't Confuse Them)

Senior citizens often mix up the standard deduction with the interest deduction.

Feature

Standard Deduction (Sec 16ia)

Interest Deduction (Sec 80TTB)

Applies To

Salary / Pension Income

Interest Income (FD/Savings)

Limit (Old Regime)

₹50,000

₹50,000

Limit (New Regime)

₹75,000

Not Available

Who Can Claim

Employees & Pensioners

Senior Citizens (60+) only

Critical Note: If you opt for the New Tax Regime to get the higher ₹75,000 Standard Deduction on pension, remember that you will lose the ₹50,000 Section 80TTB deduction on your FD interest. You must calculate which loss is greater.

How to Claim Standard Deduction in ITR

You do not need to upload any document.

1. Form 16: Your employer will automatically account for this in your Form 16 (Part B).
2. ITR Filing: When you file ITR-1 or ITR-2, the utility automatically subtracts ₹75,000 (or ₹50,000) from the "Gross Salary" field. You just need to ensure the final taxable salary reflects this reduction.

Is Standard Deduction Available to Business Owners?

No.

If you are a proprietor, partner in a firm, or a director receiving sitting fees (not salary), you cannot claim the ₹75,000 Standard Deduction.

• Exception: If you are a Director drawing a Salary (and TDS is deducted under Section 192), you can claim the standard deduction on that salary component.

Impact on TDS Deduction

Your employer considers the Standard Deduction while calculating your monthly TDS.

• If you have chosen the New Regime, your employer will subtract ₹75,000 from your estimated annual income before applying the tax slab. This increases your monthly take-home pay slightly compared to the Old Regime's ₹50,000 deduction.