Quick Answer
10 min read|Updated: Apr 1, 2026|Income-tax
Quick Answer
Under the Income Tax Act 2025, the standard deduction for AY 2026-27 is Rs 75,000 under the new regime and Rs 50,000 under the old regime. It is a flat deduction from gross salary or pension income — no bills or proof needed.
What Standard Deduction Replaced
When reintroduced in AY 2019-20, the standard deduction replaced two salary exemptions that required documentation:
- Transport Allowance Exemption: Rs 1,600 per month (Rs 19,200 per annum) was exempt from salary. Employees had to receive this specific allowance component, and technically it was meant for commuting expenses. Abolished for non-disabled employees from AY 2019-20.
- Medical Reimbursement Exemption: Rs 15,000 per annum could be claimed as tax-exempt if the employee submitted medical bills. Required actual bills and proof of medical expenditure. Abolished from AY 2019-20.
- Combined value replaced: Rs 19,200 + Rs 15,000 = Rs 34,200 was replaced by standard deduction of Rs 40,000 (net benefit Rs 5,800). Now at Rs 75,000, the net benefit over the old exemptions is Rs 40,800.
How Standard Deduction Interacts With the Rs 12 Lakh Threshold
The interplay between standard deduction and the Section 87A rebate creates the effective zero-tax threshold for salaried employees:
- Step 1: Gross salary of Rs 12,75,000
- Step 2: Less standard deduction of Rs 75,000 = Total income Rs 12,00,000
- Step 3: Tax at new regime slabs = Rs 60,000
- Step 4: Less Section 87A rebate = Rs 60,000
- Step 5: Net tax = Nil
Therefore, every rupee of standard deduction directly contributes to the zero-tax threshold. Without the Rs 75,000 standard deduction, salaried employees would hit the rebate limit at Rs 12,00,000 gross salary instead of Rs 12,75,000. The enhanced standard deduction effectively provides an additional Rs 75,000 of tax-free income.
If the employer also contributes to NPS under Section 80CCD(2) — say Rs 50,000 — then the total income is further reduced, and the effective zero-tax gross salary threshold rises to Rs 13,25,000.
Multiple Employers in a Year
A common situation arises when an employee switches jobs during the financial year:
- Rule: Standard deduction is allowed only once per financial year regardless of the number of employers. If you worked for Employer A from April to September and Employer B from October to March, the total standard deduction is still limited to Rs 75,000 (new regime).
- TDS complication: Each employer may independently apply the standard deduction while computing monthly TDS (since they may not know about the other employment). This can result in excess deduction claimed at source. The employee must reconcile this while filing the ITR and pay any differential tax.
- Best practice: Inform the new employer about the salary received from the previous employer by submitting Form 12B. This allows the new employer to compute TDS on the aggregate salary with a single standard deduction.
Standard Deduction for Pensioners
Pensioners receiving regular pension from a former employer are treated on par with salaried employees for standard deduction purposes:
- Government pensioners: Receive pension directly from the government treasury. Eligible for standard deduction of Rs 75,000 (new regime) or Rs 50,000 (old regime).
- Private sector pensioners: Receive pension from the employer’s superannuation fund or pension plan. Equally eligible for the standard deduction.
- Commuted pension: Lump sum commutation received is exempt under Section 10 (up to specified limits). The uncommuted (monthly) portion is taxable under salary head and qualifies for standard deduction.
- Senior citizen benefit: Under the old regime, senior citizen pensioners (60+) benefit from the higher basic exemption of Rs 3,00,000 in addition to the Rs 50,000 standard deduction. Under the new regime, the standard deduction is Rs 75,000 but there is no age-based exemption benefit.
Impact on TDS Computation by Employer
Employers must factor in the standard deduction when computing monthly TDS on salary:
- The employer estimates the annual salary (including all taxable components and perquisites)
- Deducts the standard deduction of Rs 75,000 (if employee has opted for or defaulted to the new regime) or Rs 50,000 (old regime)
- Under the new regime, also deducts employer NPS contribution under 80CCD(2) if applicable
- Applies the applicable slab rates
- Applies Section 87A rebate if estimated total income is within Rs 12,00,000
- Divides the annual tax by the remaining months to compute monthly TDS
If the employee does not intimate the employer about their regime choice, the employer must apply the new regime rates (since it is the default). For a comprehensive understanding of TDS provisions, see our TDS rate chart.
Impact on Net Taxable Salary at Various Income Levels
| Gross Salary (Rs) | SD (New Regime) Rs | Net Taxable (New) Rs | SD (Old Regime) Rs | Net Taxable (Old) Rs | Tax Saving from SD Difference (Rs) |
|---|---|---|---|---|---|
| 6,00,000 | 75,000 | 5,25,000 | 50,000 | 5,50,000 | Nil (rebate applies in both) |
| 10,00,000 | 75,000 | 9,25,000 | 50,000 | 9,50,000 | Nil (new regime rebate) |
| 12,75,000 | 75,000 | 12,00,000 | 50,000 | 12,25,000 | Rs 60,000+ (rebate vs no rebate) |
| 15,00,000 | 75,000 | 14,25,000 | 50,000 | 14,50,000 | Rs 3,750 (15% slab saving) |
| 20,00,000 | 75,000 | 19,25,000 | 50,000 | 19,50,000 | Rs 5,000 (20% slab saving) |
| 25,00,000 | 75,000 | 24,25,000 | 50,000 | 24,50,000 | Rs 7,500 (30% slab saving) |
| 50,00,000 | 75,000 | 49,25,000 | 50,000 | 49,50,000 | Rs 7,500 (30% slab saving) |
Key insight: The Rs 25,000 difference in standard deduction between the new and old regime (Rs 75,000 vs Rs 50,000) saves between Rs 2,500 (at 10% slab) to Rs 7,500 (at 30% slab) in tax. But the real impact is at the Rs 12-12.75 lakh income range where the higher standard deduction can be the difference between paying tax and paying nothing.
Standard Deduction in the Context of Regime Choice
When deciding between the new and old regime, the standard deduction plays a nuanced role:
- New regime advantage: Rs 75,000 standard deduction + broader slabs + Rs 60,000 rebate. But almost no other deductions allowed.
- Old regime trade-off: Only Rs 50,000 standard deduction but full access to 80C (Rs 1.5L), 80D (Rs 25K-1L), HRA, home loan interest (Rs 2L), and dozens of other deductions. See our complete deductions guide.
- The Rs 25,000 SD gap: This difference alone is not decisive. The old regime must offer deductions exceeding the new regime’s structural advantages (wider slabs, higher rebate) by a significant margin to be worthwhile.
Practical Tips
- No action needed: Standard deduction is automatic. You do not need to invest, spend, or submit any proof. Simply ensure it is reflected in your Form 16 and ITR.
- Verify Form 16: Check that your employer has correctly applied Rs 75,000 (new regime) or Rs 50,000 (old regime) as standard deduction in Part B of Form 16.
- Job change scenario: If you changed jobs, ensure the aggregate standard deduction in your ITR does not exceed Rs 75,000. Both employers may have applied it independently.
- Pension from multiple sources: If you receive pension from a former employer and also work as a salaried employee, the total standard deduction is still capped at Rs 75,000.
- Part-year salary: If you were employed for only part of the year (e.g., started a job in October), the full standard deduction of Rs 75,000 is still available — it is not prorated.
Frequently Asked Questions
What is the standard deduction amount for AY 2026-27?
Under the new regime (default), the standard deduction is Rs 75,000. Under the old regime, it is Rs 50,000. The deduction is flat and unconditional — available to all salaried employees and pensioners without any bills, investment proof, or documentation. It applies to your gross salary or pension to reduce your taxable income under the head “Income from Salaries.”
Who can claim standard deduction?
Salaried employees receiving salary or wages from an employer, and pensioners receiving pension from a former employer. It is not available for self-employed professionals, freelancers, business proprietors, or family pension recipients. Family pension has its own separate deduction of Rs 15,000 or one-third of the amount, whichever is lower.
Is standard deduction available under both old and new regime?
Yes, but at different amounts. The new regime provides Rs 75,000 (enhanced from Rs 50,000 by the July 2024 Budget). The old regime continues with Rs 50,000. This Rs 25,000 differential is one factor in the regime choice decision, though the broader slab differences and deduction availability are usually more significant factors.
Can I claim standard deduction if I changed jobs during the year?
Yes, you can claim the standard deduction, but only once per financial year. The total deduction is limited to Rs 75,000 (new regime) or Rs 50,000 (old regime) regardless of the number of employers. Submit Form 12B to your new employer with details of salary from the previous employer so TDS is computed correctly on the combined salary.
Is family pension eligible for the Rs 75,000 standard deduction?
No. Family pension received by a family member after the employee’s death is not salary — it is classified as income from other sources. It does not qualify for the standard deduction. Instead, a separate deduction of Rs 15,000 or one-third of the family pension amount (whichever is lower) is available under both regimes.
How does standard deduction affect the Rs 12 lakh tax-free threshold?
The Rs 75,000 standard deduction reduces gross salary to total income. A salaried person with gross salary of Rs 12,75,000 has total income of Rs 12,00,000 after standard deduction. Since this is within the Section 87A rebate threshold, the tax is Nil. Without the standard deduction, the zero-tax threshold for salaried employees would be Rs 12,00,000 gross instead of Rs 12,75,000.
What did the standard deduction replace when reintroduced in 2018?
The standard deduction of Rs 40,000 (2018) replaced the transport allowance exemption of Rs 19,200 per annum and the medical reimbursement exemption of Rs 15,000 per annum. These two exemptions required specific allowance components and medical bills respectively. The standard deduction simplified compliance by providing a flat amount with no documentation requirement. At today’s Rs 75,000, the benefit far exceeds the Rs 34,200 combined value of the two old exemptions.
How does my employer factor standard deduction into TDS?
The employer deducts the applicable standard deduction (Rs 75,000 new regime or Rs 50,000 old regime) from your projected annual salary when computing TDS. If your resulting total income falls within the Section 87A rebate threshold (Rs 12 lakh under new regime), the employer computes Nil TDS. The employee should intimate the employer about the chosen tax regime at the beginning of the financial year; otherwise, the default new regime is applied.
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Disclaimer: This article is for educational purposes and does not constitute legal or financial advice. Tax laws are subject to amendments via Finance Acts and CBDT notifications. For personalized tax advice, consult our team.
Written by CA V. Viswanathan, FCA, ACS, CFE, IBBI Registered Valuer (IBBI/RV/03/2019/12333) | Virtual Auditor
