Summary: For FY 2025-26 (AY 2026-27), an employee or pensioner taxed under the new regime can claim a standard deduction of up to ₹75,000 against salary or pension income. It does not require an investment or expense claim. The deduction reduces taxable income; it is neither a cash payment nor a refund. Its effect on final tax depends on the taxpayer’s total income, applicable rates and eligibility for the Section 87A rebate.
Who Can Claim the Deduction?
Section 16(ia) of the Income-tax Act, 1961 allows a standard deduction while computing income under the head “Salaries”. For FY 2025-26, the limit under the new tax regime in Section 115BAC(1A) is ₹75,000 or the amount of salary income, whichever is lower. The limit under the old regime is ₹50,000 or salary income, whichever is lower. An eligible pension from a former employer is generally taxed as salary, so the deduction can apply to it as well.
The deduction is available without submitting bills for employment expenses or making a specified investment. It cannot, however, create a loss under the head “Salaries”: someone with eligible salary income of ₹60,000 can deduct ₹60,000, not ₹75,000.
How Does It Affect Taxable Income?
Suppose an employee has salary income of ₹10,00,000 for FY 2025-26 and no other salary adjustments. After the ₹75,000 standard deduction, income under the head “Salaries” is ₹9,25,000.
This is a reduction in income used for the tax calculation. The employee does not receive ₹75,000 from the Government, and the deduction does not automatically produce a ₹75,000 tax saving. Other income, such as bank interest, must still be included in the overall computation. Capital gains and certain other income may be subject to special rates.
Employees should check Form 16 and their income-tax return to see where the deduction has been accounted for. If it has already been reflected in the salary computation, it should not be subtracted a second time.
How Is It Different From Section 80C?
Section 80C concerns specified payments and investments, subject to its conditions and limit. The standard deduction is instead a fixed deduction against eligible salary income. Section 80C is generally unavailable under the new regime, while the Section 16(ia) standard deduction remains available. A taxpayer comparing the old and new tax regimes should calculate tax under both using actual income, eligible exemptions and deductions, rather than comparing the standard deduction alone.
Does It Make Salary Up to ₹12.75 Lakh Tax-Free?
For AY 2026-27, the new regime provides a Section 87A rebate of up to ₹60,000 to an eligible resident individual whose total income does not exceed ₹12 lakh. Thus, a resident employee earning only ₹12.75 lakh of eligible salary may have total income of ₹12 lakh after the ₹75,000 standard deduction and may have no tax payable on income taxed at the ordinary new-regime slab rates.
That outcome is conditional. Other income can push total income above ₹12 lakh, and the rebate does not cover tax on income chargeable at special rates. Residency and the applicable rebate rules also matter. The ₹12.75 lakh figure should therefore not be treated as a universal tax-free salary limit.
Practical Takeaway
For FY 2025-26, claim the standard deduction once against eligible salary or pension income, then calculate tax on total income. When choosing a regime, include all income and every benefit actually available under each option. This gives a more reliable answer than looking at the ₹75,000 deduction in isolation.
