Claiming the Rs. 75,000 Standard Deduction Under the New Regime

What is the standard deduction for salaried employees in AY 2026-27? The standard deduction for AY 2026-27 is Rs. 75,000 under the new tax regime (Section 115BAC) and Rs. 50,000 under the old tax regime. This flat deduction under Section 16(ia) of the Income Tax Act is available to all salaried individuals and pensioners without requiring any receipts or proof of expenditure (Finance (No. 2) Act, 2024; incometax.gov.in/iec/foportal/ AY 2026-27 tax guide).

Every salaried taxpayer in India is entitled to the standard deduction, a flat amount subtracted from gross salary before tax is calculated. For AY 2026-27 (FY 2025-26), the amount depends on which tax regime you choose. This post covers the exact deduction under each regime, who can claim it, how it interacts with the Section 87A rebate, and worked examples showing the actual tax impact.

Standard Deduction: New Regime vs Old Regime

The Finance (No. 2) Act, 2024 increased the standard deduction under the new tax regime from Rs. 50,000 to Rs. 75,000, effective from AY 2025-26 onwards. The old regime deduction was left unchanged at Rs. 50,000.

The standard deduction is the lower of Rs. 75,000 (new regime) or Rs. 50,000 (old regime) and the actual salary received. If your salary is Rs. 40,000 for the year, your standard deduction is Rs. 40,000, not the full amount.

The new tax regime is the default for all individual taxpayers from AY 2024-25 onwards. Unless you explicitly opt out, the Rs. 75,000 deduction applies automatically.

Who Can Claim the Standard Deduction

The standard deduction under Section 16(ia) is available to:

1. Salaried employees receiving salary or wages from an employer (government or private).
2. Pensioners receiving pension from a former employer. Pension is taxed under the head "Salaries," so the same deduction applies.

It is not available to:

• Self-employed professionals or business owners (income under "Profits and Gains of Business or Profession").
• Individuals receiving only family pension. Family pension is taxed under "Income from Other Sources" and qualifies for a separate deduction of Rs. 25,000 (new regime) or Rs. 15,000 (old regime) under Section 57(iia), not the standard deduction.

If you have salary income from multiple employers in the same year, the total standard deduction across all employers is capped at Rs. 75,000 (new regime) or Rs. 50,000 (old regime). You cannot claim Rs. 75,000 from each employer separately.

How Rs. 75,000 Makes Salary Up to Rs. 12.75 Lakh Tax-Free

Tax Rate Chart

New Tax Regime Slab Rates : AY 2026-27

Finance Act 2025 slab structure applicable to salaried individuals after standard deduction

Up to Rs. 4,00,000

Zero tax

Nil

Rs. 4,00,001 : Rs. 8,00,000

Rs. 20,000 max in this band

5%

Rs. 8,00,001 : Rs. 12,00,000

Rs. 40,000 max in this band

10%

Rs. 12,00,001 : Rs. 16,00,000

Section 87A rebate covers up to Rs. 12L

15%

Rs. 16,00,001 : Rs. 20,00,000

20%

Rs. 20,00,001 : Rs. 24,00,000

25%

Above Rs. 24,00,000

Peak slab; Rs. 7,800 saving from Rs. 75K deduction

30%

Source: Finance Act 2025; PIB Press Release Feb 1, 2025; Section 115BAC, Income Tax Act

Under the new tax regime, the Section 87A rebate eliminates tax for individuals with total income up to Rs. 12,00,000 (Finance Act 2025). The combination of Rs. 75,000 standard deduction plus Section 87A rebate is the most powerful tax relief for salaried employees. For salaried employees, the standard deduction of Rs. 75,000 pushes this threshold higher:

Gross salary up to Rs. 12,75,000 = Taxable income of Rs. 12,00,000 after standard deduction = Full rebate under Section 87A = Zero tax

Here is a step-by-step calculation:

The new regime slab rates for AY 2026-27 (Finance Act 2025; PIB Press Release, February 1, 2025):

Marginal relief applies if your taxable income is slightly above Rs. 12 lakh. The tax payable is capped so that it does not exceed the amount by which your income exceeds Rs. 12,00,000.

Worked Examples: Standard Deduction Across Salary Levels

Example 1: Rs. 8 Lakh Salary (Section 87A Full Benefit)

A salaried employee earning Rs. 8,00,000 gross salary, filing under new regime:

Key point: Salary up to Rs. 8.75L (Rs. 8L + Rs. 75K deduction = Rs. 7.25L taxable) benefits fully from Section 87A rebate.

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Example 2: Rs. 12 Lakh Salary (Near Rebate Threshold)

Salaried employee earning Rs. 12,00,000:

Salary up to Rs. 12.75L qualifies for full Section 87A rebate because taxable income (after Rs. 75K deduction) doesn't exceed Rs. 12L.

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Example 3: Rs. 15 Lakh Salary (Partial Rebate)

Salaried employee earning Rs. 15,00,000:

For salaries above Rs. 12.75L, Section 87A rebate is capped at Rs. 60K. The Rs. 75K standard deduction still saves Rs. 3,750 25K × 15% + cess).

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Example 4: Rs. 25 Lakh Salary (High Income, 30% Slab)

Salaried employee earning Rs. 25,00,000:

At the 30% bracket, every Rs. 1 of standard deduction saves Rs. 0.30 + cess.

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How Standard Deduction Interacts With Other Income

Salary + House Property Income

Standard deduction applies only to salary under Section 16(ia). If you earn salary plus house property income:

House property income is added to salary income AFTER deducting the standard deduction. House property deductions (mortgage interest, property tax) are claimed separately under Section 24/43 and are available under both old and new regimes (Finance Act 2024; Circular 19/2024).

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Salary + Rental Income (Deemed Lease Agreement)

If you receive rental income from a residential property you own:

Rental income is taxed under "Income from House Property" and does not qualify for standard deduction. The 30% deduction on rental income is available under both regimes.

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Salary + Capital Gains (Stock Sales, Crypto)

Capital gains from stock sales or cryptocurrency are taxed separately based on holding period and asset class:

Capital gains do not reduce the standard deduction benefit on salary. The Rs. 75K deduction is applied to salary income only.

How to Claim the Standard Deduction in Your ITR

The standard deduction is pre-filled in the ITR utility for salaried taxpayers. You do not need to provide any supporting documents.

ITR 1 (Sahaj) and ITR 2 Schedule SAL Filing: Step-by-Step

1. Enter Gross Salary (Schedule SAL, Part A, Row 1)

   • Gather all Form 16 Part B slips from each employer.
   • Add up the "Salary" line item (before TDS, before deductions) from each Form 16.
   • In Schedule SAL, Section 1 (Income from Salary, Part A), enter this total under "Salary, Wages, etc. (before deductions)" in Row 1.
   • Example: If you worked at Employer A from Apr to Dec earning Rs. 8,50,000 and switched to Employer B for Jan to Mar earning Rs. 1,50,000, enter Rs. 10,00,000 in Row 1.

2. Verify Standard Deduction Auto-Filling (Schedule SAL, Part A, Row 8)

   • The ITR utility auto-fills the standard deduction:
     • New regime: Rs. 75,000 (from Finance (No. 2) Act, 2024)
     • Old regime: Rs. 50,000
   • The deduction is capped at actual salary received. If you earned only Rs. 40,000 for the full year, the deduction is Rs. 40,000, not Rs. 75,000.
   • Important: If you earned salary from two employers, verify the auto-filled deduction does not double-count. Maximum total deduction is Rs. 75,000 (new) or Rs. 50,000 (old) across all employers.

3. Review Employer's TDS and Form 16 (Schedule SAL, Part A, Row 9)

   • In Row 9, enter the total TDS deducted at source across all Form 16s.
   • Cross-check against the "Tax Deducted at Source" column in each Form 16 Part B.
   • The TDS shown in Form 16 already reflects your employer's application of the standard deduction (per Section 192 3)).

4. Calculate Net Salary (Schedule SAL, Part A, Row 11)

   • ITR auto-calculates: Gross salary (Row 1) − Standard deduction (Row 8) − TDS (Row 9) = Net salary income.
   • This net amount flows to Schedule ITR, "Income from Salaries."
   • Do not manually subtract the standard deduction; the ITR utility handles it automatically.

5. Regime Selection (ITR Computation, Section 1)

   • The ITR utility asks: "Which regime are you opting for?"
   • If you choose new tax regime, the Rs. 75,000 standard deduction is applied.
   • If you choose old tax regime, the Rs. 50,000 standard deduction is applied.
   • The regime selection affects your entire return (salary + other income); it is not item-by-item.

6. Optional Adjustments if Job-Switching (Schedule SAL, Part A, Row 12)

   • If you received salary from multiple employers, Row 12 allows adjustments for salary that overlapped or for employer contributions to pension schemes (Section 10 16), NPSW contribution).
   • Most job-switchers leave this blank unless they received overlapping taxable benefits.

7. No Receipts or Proof Required

   • Standard deduction does not require bills, receipts, or supporting invoices.
   • Keep your Form 16s from all employers for reference (match against the ITR copy submitted).

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Common ITR Filing Scenarios

Scenario A: Single employer, new regime

• Gross salary: Rs. 12,00,000
• Form 16 Part B line "Salary, etc.": Rs. 12,00,000
• ITR Schedule SAL, Row 1: Rs. 12,00,000
• ITR auto-fills Row 8 (Standard deduction): Rs. 75,000
• ITR auto-fills Row 9 (TDS from Form 16): Rs. 1,20,000 (if applicable)
• Net salary for tax: Rs. 12,00,000 − Rs. 75,000 = Rs. 11,25,000
• Section 87A rebate applies (income under Rs. 12L).
• Result: Tax Rs. 0 (assuming no other income).

Scenario B: Two employers (Employer A Apr to Dec, Employer B Jan to Mar), old regime

• Employer A salary: Rs. 7,50,000 (Form 16 issued)
• Employer B salary: Rs. 2,50,000 (Form 16 issued)
• Total in ITR Schedule SAL, Row 1: Rs. 10,00,000
• Regime chosen: Old tax regime
• ITR auto-fills Row 8: Rs. 50,000 (not Rs. 50K + Rs. 50K; total capped)
• Net salary: Rs. 10,00,000 − Rs. 50,000 = Rs. 9,50,000
• Tax calculated on Rs. 9,50,000 under old regime slabs.

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Regime Selection: Why It Matters for Standard Deduction

Regime selection is a one-time decision per financial year and applies to all income in your ITR (not just salary):

Most salaried employees benefit from new regime due to the Rs. 75K deduction + Section 87A rebate combination.

Standard Deduction Comparison: When Old Regime Wins

Despite the Rs. 75,000 deduction advantage, the old regime can occasionally win if you have substantial non-salary income (capital gains, rental income) or business losses.

Edge Case 1: Salaried Employee with Significant Capital Gains

• Salary: Rs. 25,00,000
• Long-term capital gains: Rs. 5,00,000 (stocks held > 12 months, 20% tax)
• New regime: Salary (Rs. 25L − Rs. 75K = Rs. 24.25L) + LTCG (Rs. 5L @ 20%) = Higher total tax
• Old regime: Salary (Rs. 25L − Rs. 50K = Rs. 24.95L) + LTCG (Rs. 5L @ 20%) + potentially deductible losses if any
• Verdict: Old regime may save tax if capital loss offsets are available; new regime applies to all income as one pool.

Edge Case 2: Salaried Employee with House Rent Allowance (HRA) & Home Loan Interest

• Salary: Rs. 15,00,000
• HRA received: Rs. 3,00,000 (tax-exempt under Section 10 13A, limits apply)
• Home loan interest: Rs. 3,00,000 (deductible under Section 24 at capped Rs. 2,00,000 for self-occupied)
• New regime: Cannot claim HRA exemption or home loan interest deduction. Standard deduction only: Rs. 75K.
• Old regime: HRA exemption (Rs. 3L fully exempt if < 50% salary) + home loan interest (Rs. 2L deduction) = Rs. 5L+ deductions vs Rs. 75K
• Verdict: If home loan interest > Rs. 75K, old regime wins significantly.

Edge Case 3: Pensioner with Gratuity + Pension Income

• Pension: Rs. 12,00,000 (taxed as salary, standard deduction applies)
• Gratuity received: Rs. 10,00,000 (may be fully tax-free up to Rs. 20 lakh under Section 10 10C if eligible)
• New regime: Pension (Rs. 12L − Rs. 75K = Rs. 11.25L) + gratuity (tax-free if eligible) = Rs. 11.25L taxable
• Old regime: Same + old regime slabs apply (higher rates post Rs. 12L)
• Verdict: New regime advantage holds, but gratuity tax-free status supersedes both regimes.

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Standard Deduction Edge Cases & Traps

Trap 1: "I Earned Rs. 40,000 But Can Claim Rs. 75,000"?

No. Standard deduction cannot exceed actual salary received. If your gross annual salary is Rs. 40,000, your standard deduction is Rs. 40,000, not Rs. 75,000. The ITR utility caps it automatically.

Trap 2: Job-Switching and Double Deduction

If you worked for Employer A from April to December (salary Rs. 8L, Form 16 issued) and switched to Employer B from January to March (salary Rs. 2L, Form 16 issued):

• Total salary: Rs. 10L
• ITR deduction: Rs. 75,000 total (new regime), not Rs. 75K + Rs. 75K
• Each employer applies their own Rs. 75K deduction in their payroll, but your ITR must reflect the correct total (capped at Rs. 75K).
• Reconciliation needed: If both employers applied Rs. 75K, you must add back the overage in your ITR.

Trap 3: Standard Deduction Does NOT Apply to Freelancers or Business Income

If you have self-employment income (consulting, freelancing, business):

• Standard deduction is not available.
• You claim actual business expenses or use presumptive taxation (e.g., Section 44ADA: assume 50% of professional receipts as profit; Section 44AD: assume 8% of turnover for cash/6% for digital transactions).
• Mixing salary + business income in your ITR uses the deduction on salary only; business income has its own expense/presumption rules.

Trap 4: Pensioner Pitfall: Family Pension is Different

If your deceased spouse/parent left you a family pension (continuing for your lifetime):

• Family pension is not salary.
• Standard deduction (Rs. 75K new / Rs. 50K old) does not apply.
• Instead, you claim a separate family pension deduction of Rs. 25,000 (new regime) or Rs. 15,000 (old regime) under Section 57(iia).
• Don't confuse: Regular pension (taxed as salary) vs family pension (different treatment).

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Frequently Asked Questions (FAQ)

Can I claim the standard deduction if I earned salary from two employers in the same year?

Yes, but the total standard deduction across both employers is capped at Rs. 75,000 (new regime) or Rs. 50,000 (old regime).

If Employer A applied Rs. 75,000 in their tax computation, and you also worked for Employer B, you cannot claim another Rs. 75,000 in your ITR. You must add back the excess to your taxable income.

Example:

• Employer A salary: Rs. 8,00,000, applied Rs. 75K deduction in Form 16
• Employer B salary: Rs. 4,00,000, applied Rs. 50K deduction in Form 16
• In your ITR, you enter total salary Rs. 12,00,000 and deduct Rs. 75,000 total (not Rs. 75K + Rs. 50K).
• You must add back Rs. 50,000 to salary as taxable income.

Verification: The combined Form 16s should show total TDS that reflects the employers' aggregate deduction application.

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Common Mistakes to Avoid

1. Claiming Rs. 75,000 in the old regime. The Rs. 75,000 amount applies only under the new tax regime. If you opt for the old regime, your standard deduction is Rs. 50,000. Filing the wrong amount will trigger a defective return notice under Section 139 9).

2. Confusing standard deduction with family pension deduction. Family pension (received by a deceased employee's family member) is not salary. It qualifies for a separate deduction of Rs. 25,000 (new regime) or Rs. 15,000 (old regime) under Section 57(iia), not the Rs. 75,000 standard deduction.

3. Double-counting across employers. If you had two employers during the year and each applied the standard deduction, you must ensure the total deduction in your ITR does not exceed Rs. 75,000. The excess must be added back to your taxable income.

Tax Garden Files Your ITR With the Right Deductions

Choosing between the old and new regime, applying the correct standard deduction, and verifying Form 16 entries takes time. Tax Garden's ITR filing service handles this end-to-end: we pick the regime that saves you more, apply all eligible deductions including the Rs. 75,000 standard deduction, and file your return before the deadline. See our pricing for flat-fee plans. For context on which regime saves you more, see the old vs new tax regime comparison for AY 2026-27.