Section 16 of Income Tax Act: Deductions and 2026 Update

In summary

Section 16 governed deductions from salary under the Income-tax Act, 1961. It remains relevant for income periods governed by the old Act, including FY 2025-26 and AY 2026-27. From Tax Year 2026-27, the Income-tax Act, 2025 applies. The key points are:

• Section 19 replaces old Section 16
• New Act applies from April 2026
• New-regime deduction is Rs. 75,000
• Other-regime deduction remains Rs. 50,000
• Professional tax depends on tax regime
• Old entertainment deduction rules have changed

For current salary earned from 1 April 2026, check Section 19 rather than relying only on old Section 16. The applicable deduction also depends on whether your income is taxed under the default new regime or the alternative old regime.

Section 16 of the Income-tax Act, 1961 allowed specified deductions while calculating income taxable under the head “Salaries”.

For FY 2025-26, corresponding to AY 2026-27, the main deductions under Section 16 included:

• Section 16[ia]: Standard deduction
• Section 16[ii]: Entertainment allowance deduction for eligible government employees
• Section 16(iii): Tax on employment, commonly called professional tax

These were deductions from salary income rather than separate tax rebates.

When filing Income Tax Returns, it is therefore important to distinguish a salary deduction from a deduction applied later while computing total income.

The biggest change is that Section 16 is no longer the current section for salary deductions earned from 1 April 2026.

The Income-tax Act, 2025 came into force on 1 April 2026. The Income Tax Department states that Tax Year 2026-27 and later periods are governed by the new Act, while earlier periods such as AY 2026-27 continue under the Income-tax Act, 1961.

Under the new law, Section 19 covers deductions from salary. The Income Tax Department's statutory text provides a standard deduction of:

• Rs. 75,000 or salary, whichever is lower where tax is calculated under Section 202(1), which is the default new regime
• Rs. 50,000 or salary, whichever is lower in other cases

This transition is important when reading older articles about Section 16.

The applicable section depends on the income period you are discussing.

The Income Tax Department confirms that payments and tax matters for Tax Year 2026-27 onward are governed by the Income-tax Act, 2025.

The standard deduction reduces salary income without requiring you to prove that you incurred an equivalent employment expense.

For Tax Year 2026-27 under the Income-tax Act, 2025, Section 19 allows Rs. 75,000 or salary, whichever is lower under the default new regime. If you opt for the alternative regime, the limit is Rs. 50,000 or salary, whichever is lower.

For example, suppose Asha earns a salary of Rs. 10 lakh during Tax Year 2026-27 and uses the default new regime.

The calculation is:

Salary = Rs. 10 lakh

Less standard deduction = Rs. 75,000

Salary after standard deduction = Rs. 9.25 lakh

This illustration only shows the effect of the standard deduction. The final taxable income and tax liability can change because of other income, permitted deductions, rebates, and special-rate income.

Professional tax can still be relevant, but its treatment depends on your tax regime.

Under Section 19 of the Income-tax Act, 2025, tax on employment levied under Article 276(2) of the Constitution is listed as a salary deduction. The statutory table permits the entire qualifying amount paid.

However, Section 202 specifically disallows the Section 19 employment-tax deduction when income is computed under the default new regime.

Therefore:

• Default new regime: Professional-tax deduction is not available
• Alternative old regime: Qualifying professional tax paid can be deductible

The Constitution limits the tax on professions, trades, callings, and employment imposed by a state to Rs. 2,500 per person per year.

For salary deductions, the standard deduction is available under both tax-regime choices, but the amount differs.

The current position for Tax Year 2026-27 is:

The new-regime tax slabs start at Nil up to Rs. 4 lakh, followed by rates of 5%, 10%, 15%, 20%, 25%, and 30% at the prescribed income levels.

Section 16 of the Income-tax Act, 1961 remains relevant for periods such as FY 2025-26 and AY 2026-27. It covered salary deductions including the standard deduction, entertainment allowance for eligible government employees, and professional tax.

From 1 April 2026, salary deductions are governed mainly by Section 19 of the Income-tax Act, 2025. Salaried taxpayers should therefore check the applicable tax year, tax regime, and current deduction limits before calculating taxable salary.

Last reviewed: October 2026

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