Standard Deduction: Know What It is and Its Benefits in 2025

The standard deduction for FY 2024-25 (AY 2025-26) allows salaried individuals to claim a flat Rs. 50,000 under old tax regime and Rs. 75,000 under new tax regime on the taxable income of salaried employees and pensioners, irrespective of their earnings. This deduction is straightforward and does not require any evidence or proof of investment. All salaried taxpayers are eligible without documentation. For example, a Rs. 6 lakh salary becomes Rs. 5.5 lakh taxable income.
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2 min
09 July 2024

Standard deduction is a fixed amount that salaried individuals and pensioners can reduce from their total income, helping lower their tax burden. It removes the need to list or prove specific expenses, offering a hassle-free way to reduce taxable income. This deduction is especially helpful for middle-income earners, as it provides tax relief without requiring any investments or documentation. Both old and new tax regimes offer this benefit, though the amount varies. Let’s take a closer look at how standard deduction works under the Indian Income Tax Act and who can benefit from this provision.

Latest updates 2025

From 1 April 2025, several taxpayer-friendly changes will apply:

  • Section 87A rebate raised: Individuals with income up to Rs. 12 lakh can now claim this rebate, significantly reducing their tax liability.

  • Standard deduction increased: Salaried individuals and pensioners under the new tax regime can claim Rs. 75,000, making total income up to Rs. 12.75 lakh completely tax-free.

  • Updated tax slabs (new regime):

    • Rs. 0 – Rs. 4 lakh: Nil

    • Rs. 4 lakh – Rs. 8 lakh: 5%

    • Rs. 8 lakh – Rs. 12 lakh: 10%

    • Rs. 12 lakh – Rs. 16 lakh: 15%

    • Rs. 16 lakh – Rs. 20 lakh: 20%

    • Rs. 20 lakh – Rs. 24 lakh: 25%

    • Rs. 24 lakh and above: 30%

  • More time to update ITRs: Taxpayers now have 4 years to revise their returns under ITR-U, up from the earlier 2-year limit.

What is standard deduction

The standard deduction is a fixed amount that reduces the income on which you are taxed. It is a crucial component of the tax system, simplifying the process for taxpayers who do not itemise deductions. The amount of the standard deduction is adjusted periodically and varies based on your income bracket and filing status.

Standard deduction in old and new tax regime

For the financial year 2024-25 (AY 2025-26), the standard deduction available is:

  • Old Tax Regime: Rs. 50,000

  • New Tax Regime: Rs. 75,000

This deduction is applicable to salaried individuals and pensioners regardless of income level. It provides relief without requiring documentation or investment proofs. In both regimes, the deduction is directly subtracted from your salary or pension income before tax is calculated. However, the higher benefit under the new regime makes it more attractive for many, especially those who don’t have many other deductions to claim under Chapter VI-A.

What is the purpose of standard deduction?

The standard deduction was implemented with the following aims:

  • Simplify tax filing: Reduces the burden of tracking and submitting bills for expenses.

  • Provide relief for salaried individuals: Especially useful for the middle class who may not make large tax-saving investments.

  • Support pensioners: Extends financial relief to retired individuals who rely on pensions.

This fixed deduction replaces earlier reimbursements like transport allowance or medical reimbursements. It’s a simplified approach by the Income Tax Department to offer equitable tax relief across a broad range of earners.

Who is eligible to claim a standard deduction?

The standard deduction is available to:

  • Individuals receiving salary income

  • Individuals receiving pension income

However, the deduction is not available to:

  • Self-employed individuals, freelancers, or business owners

  • Individuals earning only from rent, capital gains, or interest

  • Legal heirs receiving a family pension, as this is taxed under "Income from Other Sources"

Only those who fall under the “Income from Salary” category for taxation purposes are eligible. Pensioners are treated under this category, but legal heirs receiving a family pension are not, and thus cannot claim the deduction.

How does standard deduction reduce taxable income?

The standard deduction allows salaried employees and pensioners to directly reduce their taxable income by a fixed amount:

  • Rs. 50,000 under the old tax regime

  • Rs. 75,000 under the new tax regime

It does not depend on actual spending or require any receipts. This benefit is meant to account for basic work-related or living expenses that are otherwise not covered by other tax deductions.

Example
If your annual salary is Rs. 12,00,000, and you choose the new regime, you can subtract Rs. 75,000 as standard deduction. Your taxable income becomes Rs. 11,25,000. The tax is then calculated on this reduced amount, lowering your tax bill.

This deduction is built-in and straightforward, making it easier for taxpayers to file returns without needing to gather proof for every claim.

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Benefits of the standard deduction

  1. Simplicity and convenience: One of the primary advantages of the standard deduction is its simplicity. Taxpayers do not need to keep track of every deductible expense throughout the year. Instead, they can claim a set amount, reducing the complexity and paperwork involved in filing taxes.
  2. Increased tax savings: For many taxpayers, the standard deduction results in greater tax savings compared to itemising deductions. This is especially true for individuals with fewer deductible expenses, such as those without significant home loan interest, medical expenses, or charitable contributions.
  3. Automatic adjustment: The standard deduction is adjusted periodically to account for changes in the cost of living, ensuring that taxpayers' deductions remain relevant and beneficial over time. This adjustment helps maintain the value of the deduction, providing ongoing tax relief.
  4. Accessibility for all taxpayers: The standard deduction is available to all taxpayers, regardless of their income level or specific financial situation. This broad accessibility makes it an essential tool for maximising tax benefits across a wide range of scenarios.

Planning major financial decisions like buying a home alongside tax savings can create a comprehensive wealth-building strategy. With the money you save through standard deduction and other tax benefits, you could be closer to homeownership than you think. Check your home loan eligibility with Bajaj Finserv today. You may already be eligible, find out by entering your mobile number and OTP.

Documents required for standard deduction

No proof or supporting documents are needed specifically to claim the standard deduction. It is automatically granted when you declare salary or pension income in your return.

However, for overall tax filing, you should keep these documents ready:

  • Bank statements for the financial year

  • Interest or FD income statements

  • TDS certificates from your employer or bank

  • Investment proof (for other deductions, if any)

  • Form 26AS and Annual Information Statement (AIS)

Although not required for the standard deduction itself, these documents ensure accuracy while filing your ITR and claiming other benefits, if eligible.

Maximizing your tax benefits with the standard deduction

1. Combining standard deduction with Section 80C investments

Investing in instruments covered under Section 80C of the Income Tax Act is an effective way to reduce your taxable income. Popular options include Public Provident Fund (PPF), Employee Provident Fund (EPF), National Savings Certificate (NSC), and life insurance premiums. The maximum deduction allowed under Section 80C is Rs. 1.5 lakh, and when combined with the standard deduction, it can significantly lower your overall tax liability.

2. Utilising health insurance under Section 80D

Health insurance premiums paid for yourself, your family, and your parents are deductible under Section 80D. The deduction limit is Rs. 25,000 for premiums paid for yourself, your spouse, and children, and an additional Rs. 25,000 for premiums paid for parents. If the parents are senior citizens, the limit increases to Rs. 50,000. This can provide substantial tax savings while ensuring financial protection against medical emergencies.

3. Leveraging education loan interest deduction under Section 80E

The interest paid on an education loan for higher studies is deductible under Section 80E. There is no maximum limit for this deduction, and it is available for a period of eight years or until the interest is paid off, whichever is earlier. This can significantly reduce your taxable income if you are repaying an education loan.

4. Home loan interest deduction under Section 24(b)

While the standard deduction is beneficial, there are circumstances where itemising deductions can lead to greater tax savings. One such scenario is home loan interest deduction under Section 24(b). Interest paid on a home loan is deductible under Section 24(b) up to Rs. 2 lakh per annum for self-occupied properties. If you have a second home or rented property, the entire interest amount is deductible without any limit, provided it is rented out.

If you're considering purchasing your first home or investment property, the tax benefits from home loan interest can significantly enhance your overall tax savings strategy. Bajaj Finserv offers competitive home loan rates that make homeownership more affordable while maximising your tax deductions. Check your loan offers from Bajaj Finserv today. You may already be eligible, find out by entering your mobile number and OTP.

5. Charitable contributions under Section 80G

Contributions made to specified charitable institutions and relief funds are deductible under Section 80G. Depending on the institution, you can claim a deduction of 50% or 100% of the donated amount, subject to certain limits. By keeping track of these opportunities, you can enhance your overall tax strategy while contributing to a good cause.

Standard deduction for pensioners

Pensioners between 60 and 80 years are considered senior citizens and enjoy certain tax benefits. If you receive a regular pension from your former employer, it is treated as salary income and qualifies for a standard deduction.

Amount of Deduction:

  • Rs. 50,000 under the old regime

  • Rs. 75,000 under the new regime (from FY 2024–25 onwards)

This deduction helps reduce the taxable income of pensioners, offering much-needed relief in retirement.

However, in the case of family pensions (received by legal heirs of deceased pensioners), the income is taxed under “Income from Other Sources.” Thus, it is not eligible for the standard deduction under Section 16(ia). Instead, Budget 2025 has increased the fixed deduction for family pensioners from Rs. 15,000 to Rs. 25,000.

This update acknowledges the financial needs of families who rely on inherited pensions and aims to provide additional relief under the new tax regime.

In short, retired individuals drawing a pension directly from their employer can claim standard deduction, while family pensioners have a different benefit structure under the law.

Example of standard deduction under old tax regime

Particulars

Amount

Gross salary income

Rs. 8 lakh

Less: standard deduction (old regime)

Rs. 50,000

Net salary income or gross taxable income

Rs. 7.5 lakh

Less: deduction under Section 80C

Rs. 1.5 lakh

Net taxable income

Rs. 6 lakh


Example of standard deduction under new tax regime
 

Particulars

Amount

Gross salary income

Rs. 8 lakh

Less: standard deduction (new regime)

Rs. 75,000

Net salary income or gross taxable income

Rs. 7.25 lakh

Less: deduction under Section 80C

Zero

Net taxable income

Rs. 7.25 lakh

How is the standard deduction calculated in the case of multiple employers?

The standard deduction remains fixed regardless of how many employers you’ve worked for during the year.

Let’s say you switch jobs within the financial year and have two Form-16s—one from each employer. You do not get to claim the deduction twice. The total standard deduction allowed for the year remains:

Rs. 50,000 under the old tax regime

Rs. 75,000 under the new tax regime

So even if you worked for multiple companies, you can only subtract the standard deduction once while filing your Income Tax Return.

Ensure that while combining income from multiple jobs, you apply the standard deduction only once from the total salary. This helps prevent errors and ensures correct tax calculations.

History of the standard deduction

The standard deduction was first introduced in 1974 to streamline tax filings for salaried taxpayers. Initially based on a percentage of income, it was revised many times before being scrapped in 2005 by Finance Minister P. Chidambaram, who felt it had become outdated.

After more than a decade, the deduction was reintroduced in Budget 2018 at Rs. 40,000, replacing earlier exemptions like transport allowance and medical reimbursements. In Budget 2019, this amount was increased to Rs. 50,000, bringing relief to millions of salaried individuals.

Although not available under the new tax regime when it was first introduced, Budget 2023 allowed standard deduction within the new system, maintaining the Rs. 50,000 limit.

In Budget 2024, a major update was announced: the standard deduction under the new regime would increase to Rs. 75,000 starting from FY 2024-25. Meanwhile, the old regime continues to offer a deduction of Rs. 50,000.

Despite being a simple concept, the standard deduction plays a powerful role in reducing taxable income. It’s advisable to consult a tax expert to ensure you make the most of all deductions, including this one, and minimise your tax burden effectively.

Exploring home loans

For those considering purchasing a home, a home loan can provide significant tax benefits through mortgage interest deductions. Additionally, homeownership often comes with other financial advantages, such as property tax deductions and potential capital gains exemptions when selling the home.

When looking for a home loan, it's essential to choose a reputable and reliable lender. Bajaj Housing Finance offers competitive home loan options with attractive home loan interest rates and flexible repayment terms. By securing a Bajaj Housing Finance Home Loan, you not only benefit from favourable loan conditions but also gain access to potential tax deductions on mortgage interest, further maximising your tax savings.

Conclusion

Maximizing your tax benefits through the standard deduction involves a strategic approach to financial planning. By understanding the advantages of the standard deduction and incorporating other tax-advantaged financial products, you can significantly reduce your taxable income and enhance your overall financial health.

Incorporating tools like Section 80C investments, health insurance under Section 80D, education loan interest under Section 80E, and home loans can further optimize your tax strategy. When considering a home loan, Bajaj Housing Finance Home Loan stands out as an excellent choice, offering competitive rates and terms that align with your financial goals. You might already be eligible, check your offers now by entering your mobile number and OTP.

By leveraging these strategies and products, you can make the most of the standard deduction and ensure a more secure and prosperous financial future.

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Frequently asked questions

What is the standard deduction limit for different categories of taxpayers?
The standard deduction limit for salaried and pensioned individuals is Rs. 50,000 per annum irrespective of the income level.
Can standard deduction be claimed under the new income tax regime?
Yes, under the new income tax regime which started from the financial year 2020-21, individuals can continue to claim the standard deduction of Rs. 50,000 from their salary income. However, they'll need to forgo certain other exemptions and deductions available under the old regime.
Is standard deduction available to senior citizens also?

Yes, senior citizens drawing a pension or receiving salary are eligible for the standard deduction. Age does not affect eligibility. If the income is classified under ‘Salaries’—including regular pensions—then the deduction applies. However, it does not apply to family pensioners, as that income falls under "Other Sources."

Can I claim the standard salary deduction even if my income is more than Rs. 5,00,000?

Yes, the standard deduction applies no matter how high your salary is. As long as you earn income from salary or pension, you’re eligible. The amount of your income does not affect your right to claim this deduction.

Do I need to submit proof to claim a standard deduction under Income Tax?

No, you don’t need to provide any bills or documents to claim the standard deduction. It is a flat deduction allowed automatically when filing your return, and is reflected in your Form 16 if you’re a salaried employee.

How is the standard deduction different from income tax deductions?

Standard deduction is a fixed amount subtracted from salary income, without proof. In contrast, other deductions (like 80C, 80D) depend on investments or actual expenses. Standard deduction is allowed before calculating Gross Total Income, while Section 80C-type deductions are allowed after.

Can an employee claim both standard deduction and income tax deductions?

Yes, both can be claimed. The standard deduction is separate and can be combined with deductions under Section 80C, 80D, etc., provided you meet the eligibility for each.

Which section of the Income Tax Act covers standard deduction?

The standard deduction is covered under Section 16(ia) of the Income Tax Act. This provision applies to salary and pension income only.

Is the standard deduction calculated monthly?

No, it is not calculated monthly. It is a fixed amount deducted once for the full financial year when filing your Income Tax Return, irrespective of the number of months you worked.

Is standard deduction available for self-employed individuals in India?

No, self-employed professionals and business owners are not eligible. Standard deduction only applies to individuals earning from salary or pension—not from business or freelancing.

Is standard deduction applicable to employees of the Central or State Government?

Yes, both Central and State Government employees can claim the standard deduction. It is available to all salaried individuals regardless of their employer.

Is the Rs. 75,000 standard deduction available to those earning only interest from FDs?

No, it is not. Standard deduction applies only to salary or pension income. Interest income from fixed deposits falls under “Other Sources” and doesn’t qualify.

Who is not eligible for the standard deduction?

People without salary or pension income cannot claim the standard deduction. This includes freelancers, business owners, and those earning only from rent, capital gains, or interest.

Is the standard deduction component mandatory in a salary structure? What if it's missing from my payslip?

It’s not mandatory for your payslip to show the standard deduction. You can claim it directly while filing your ITR. From FY 2024–25, it’s allowed under both old and new tax regimes, so you won’t miss out.

My payslip shows deductions under Section 10 and 17. What does that mean?

These are allowances and exemptions like HRA, transport allowance, or medical reimbursements. They reduce your taxable income. Check your payslip for details or consult your Form 16 for exact claims.

How do I claim deductions not shown in Form 16?

You can add those while filing your ITR. Even if your employer didn’t include them in Form 16, you’re allowed to claim eligible deductions on your own at the time of filing.

What is the standard deduction under Section 16(ia)?

Section 16(ia) offers a flat deduction to individuals earning salary or pension income. From FY 2024–25 onwards, the deduction is Rs. 75,000 under the new regime and Rs. 50,000 under the old regime.

How much standard deduction can I claim without receipts?

You can claim the full standard deduction—Rs. 50,000 or Rs. 75,000—without any receipts or documents. It’s a fixed benefit for all eligible taxpayers.

Is standard deduction part of Section 80C?

No, it isn’t. Standard deduction is separate from Section 80C and doesn’t reduce your Rs. 1.5 lakh 80C limit. You can claim both if eligible.

Since you can claim both standard deduction and Section 80C benefits simultaneously, this creates an excellent opportunity to maximise your tax savings and potentially fund a home purchase. Many taxpayers use their combined tax savings as a down payment or to qualify for better loan terms. Discover how much you could save with a home loan from Bajaj Finserv. Check your loan offers now. You may already be eligible, find out by entering your mobile number and OTP.

Is standard deduction applicable to all salaried persons, including government employees?

Yes, all salaried persons—whether working in private companies or government jobs—are eligible. It’s also available to pensioners, provided the income is taxed under the ‘Salaries’ head.

Is standard deduction available to family pensioners?

No. Family pension is taxed under “Other Sources,” not “Salaries.” However, from Budget 2025, a separate fixed deduction of Rs. 25,000 is allowed for family pensioners.

Mr. X earns a gross salary of Rs. 7,00,000 in FY 2024-25. What standard deduction applies?

Mr. X can claim:

  • Rs. 50,000 under the old tax regime

  • Rs. 75,000 under the new tax regime

He can choose either regime when filing ITR, depending on which offers more tax savings.

With a salary of Rs. 7 lakh and smart tax planning through standard deduction, Mr. X could be in an excellent position to qualify for a home loan. The tax savings from standard deduction can contribute towards EMI affordability and down payment planning. If you're in a similar income bracket, explore your home buying potential with Bajaj Finserv's competitive home loan options. Check your eligibility today. You may already be eligible, find out by entering your mobile number and OTP.

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