Standard Deduction of ₹75,000: Who Gets It, How It Works, and What It Is Worth

The standard deduction is the simplest tax break in India: a flat amount knocked off your salary before any slab is applied, with no receipts, no investments and no forms. Since FY 2024-25 it has been ₹75,000 in the new regime and ₹50,000 in the old, and Budgets 2025 and 2026 left both figures alone. It sounds too small to matter, but it is the reason a ₹12.75 lakh salary is tax-free rather than ₹12 lakh, and at the 30% band it is worth ₹23,400 a year. This guide covers who gets it, who does not, and the edge cases - part-year jobs, two employers, pensions, family pensions - where people get it wrong.

What the standard deduction actually does

Income from salary is computed as gross salary minus a short list of deductions under Section 16. The standard deduction under Section 16(ia) is the first and largest of them. It replaced two older allowances - transport allowance (₹19,200) and medical reimbursement (₹15,000) - in 2018, initially at ₹40,000, and has been raised twice since.

It is a deduction from salary income specifically, not from total income. That distinction is what decides who qualifies.

Who gets it - and who does not

• Salaried employees - private sector, government, contract employees on payroll. Yes, in both regimes.
• Pensioners receiving a pension from a former employer. Yes: pension is taxed as salary, so the same ₹75,000 / ₹50,000 applies. This includes commuted and uncommuted pension paid by the employer or through a bank.
• Family pensioners (a spouse or child receiving the pension of a deceased employee). No - family pension is "income from other sources", not salary. Instead, a separate deduction applies: one-third of the pension or ₹25,000 in the new regime (raised from ₹15,000 by Budget 2024) and ₹15,000 in the old, whichever is lower.
• Freelancers, consultants and business owners. No. Their income is "profits and gains of business or profession", and there is no standard deduction on it - they deduct actual expenses, or use the presumptive schemes under 44AD / 44ADA instead. A consultant paid ₹12 lakh on invoices does not get the ₹12.75 lakh tax-free ceiling; the ₹12 lakh rebate limit applies to taxable income directly.
• Directors drawing remuneration from their company. Yes, if it is paid as salary (a director's fees are salary when there is an employer-employee relationship); no, if it is professional fees.

What ₹75,000 is worth at each income

Because the deduction comes off the top of taxable income, its value is ₹75,000 times the rate on your last rupee - your marginal rate - plus cess:

The ₹25,000 gap between the two regimes' deductions (₹75,000 vs ₹50,000) is one of the reasons the old regime needs so many deductions to catch up: it starts ₹25,000 behind before any 80C is counted. Our old vs new guide shows the break-even.

The edge cases where people get it wrong

You worked only part of the year

You still get the full ₹75,000. The deduction is not pro-rated by months of service. Someone who joined in January and earned ₹3 lakh of salary in the year deducts ₹75,000 from that ₹3 lakh (it cannot exceed the salary itself, so at very low salaries it is capped at the salary amount).

You had two employers in the year

One deduction, not two. Each employer's payroll will apply ₹75,000 when computing TDS - which means your combined TDS is understated by the tax on ₹75,000, and you will owe the difference at filing. Give your new employer Form 12B with your previous salary details so they can compute TDS on the combined figure.

You have salary and pension

Still one deduction. Salary and pension are both "salary" income and the ₹75,000 applies once to the total.

You have salary and freelance income

The deduction applies only to the salary part. Your freelance income is computed separately with actual expenses or the presumptive rate. Both are then added to arrive at total income.

Your employer did not apply it

Rare, but it happens with small employers. Check Form 16 Part B for the line "Standard deduction under section 16(ia)". If it is missing, claim it in your ITR anyway - the ITR form applies it automatically when you report salary income - and your excess TDS will be refunded.

The other Section 16 deductions

Two smaller items sit alongside the standard deduction. Both are old-regime only: the new regime allows the standard deduction and nothing else under Section 16.

• Professional tax under Section 16(iii) - the state levy (up to ₹2,500 a year, deducted monthly by your employer) is deductible in the year it is paid. It appears on almost every payslip in Maharashtra, Karnataka, West Bengal, Tamil Nadu and several other states.
• Entertainment allowance under Section 16(ii) - government employees only; least of ₹5,000, one-fifth of basic salary, or the actual allowance.

Neither changes the headline: for most people the standard deduction is the only Section 16 item that matters, and it is applied whether or not you remember it exists.

Frequently asked questions