Standard Deduction in the New Tax Regime: How It Actually Works

The standard deduction sounds like a claimable benefit, but it isn't something you apply for — it applies automatically if you qualify, and not at all if you don't.

• New regime amount: Rs. 75,000, up from Rs. 50,000 under the old regime
• Who qualifies: salaried employees and pensioners only
• Who doesn't qualify: self-employed individuals and professionals with no salary or pension income
• Applied automatically: no documentation or claim process required
• Combined with the Section 87A rebate, it's why salaried income up to Rs. 12.75 lakh can result in zero tax

This deduction requires no action from you — it's built into the calculation, provided your income source qualifies.

This is the real question behind most standard deduction confusion — self-employed individuals often want to know why this benefit isn't available to them. The answer lies in the deduction's original purpose: it was introduced to give salaried employees a flat, no-questions-asked offset against work-related costs, since self-employed taxpayers can already deduct actual business expenses directly against their income.

The practical alternatives available to a self-employed individual are:

• Claim actual, documented business expenses against income
• Use the presumptive taxation scheme where eligible

• Accept a higher taxable income relative to a salaried peer at the same gross figure

  
  

None of these route through "standard deduction" specifically, since that mechanism is built around salary structure, not business income. This distinction frustrates many self-employed taxpayers, but it reflects a genuinely different tax treatment rationale rather than an oversight in the law.

1. Start with gross salary for the financial year.
2. Subtract Rs. 75,000 as the standard deduction — no receipts or documentation required.
3. Apply the resulting figure against the new regime's tax slabs.

4. Factor in the Section 87A rebate separately, if net taxable income falls within the rebate threshold.

   
   

This sequence explains why a salaried individual's effective tax-free threshold (Rs. 12.75 lakh gross) is higher than the headline Rs. 12 lakh rebate threshold — the standard deduction is subtracted first, before the rebate calculation even applies.

No — the figure and even its existence have changed over the years, and knowing this history explains why older articles or advice may quote a different number entirely.

The standard deduction was actually abolished in 2005 and reintroduced in 2018 — a detail worth knowing since it explains why the deduction has no connection to actual expenses despite sounding like an expense reimbursement. Its reintroduction was specifically framed as simplifying compliance for salaried taxpayers, replacing a more complex set of allowances that existed before 2005 with one flat figure.

Consider Kritika, a 29-year-old software developer with a gross salary of Rs. 9 lakh a year and a CIBIL Score of 741, filing under the new regime.

Because Kritika's net taxable income after the standard deduction falls within the Rs. 12 lakh rebate threshold, her final tax liability is zero — the standard deduction is what brought her taxable income low enough for the rebate to fully offset it. Had her gross salary been even Rs. 20,000 higher, this same calculation could have pushed her net taxable income past the rebate threshold, resulting in a real tax liability rather than zero.

The new regime's standard deduction doesn't offer home loan interest benefits the way the old regime's Section 24(b) does — factor this into your regime choice if a home loan is part of your near-term plan. Check your home loan eligibility before finalising your tax and financing plans together.