Standard Deduction

What it means

Standard deduction is a flat amount deducted from salary or pension income before tax is calculated. You do not need to show any bills, receipts or investment proof. It was introduced to cover routine work-related expenses such as travel and is available to every salaried employee and pensioner.

How it works

The deduction is allowed from “income from salary” and is the lower of the fixed limit or your actual salary.

• New tax regime: ₹75,000.

• Old tax regime: ₹50,000.

• Pensioners receiving pension from a former employer get the same standard deduction, because such pension is taxed as salary.

• Family pension (received by a family member after the employee’s death) is not salary. It has its own deduction of one-third of the pension, up to ₹25,000 under the new regime and ₹15,000 under the old regime.

• If you have two employers in the same year, the deduction is allowed only once in total.

Your employer applies it automatically when computing TDS, and it appears in Form 130 (earlier Form 16).

Example

Priya’s annual salary is ₹12,75,000 and she has no other income. She chooses the new regime.

1. Gross salary: ₹12,75,000.

2. Less standard deduction: ₹75,000.

3. Taxable income: ₹12,00,000.

4. Tax on slabs: 0 to ₹4 lakh nil; ₹4 to 8 lakh at 5% = ₹20,000; ₹8 to 12 lakh at 10% = ₹40,000. Total ₹60,000.

5. Rebate under section 87A: ₹60,000, since taxable income does not exceed ₹12 lakh.

6. Tax payable: nil.

Without the standard deduction her taxable income would be ₹12,75,000, the 87A rebate would not apply, and she would pay tax of ₹60,000 + (₹75,000 x 15%) = ₹71,250, plus 4% cess of ₹2,850, a total of ₹74,100. This shows how valuable the ₹75,000 deduction is near the ₹12 lakh threshold.

Key points to remember

• It applies only to salary and pension income, not to business, freelance or rental income.

• No proof or declaration is needed. It is automatic.

• It is ₹75,000 under the new regime and ₹50,000 under the old regime, so it is one factor when comparing regimes.

• Do not claim it twice when you switch jobs during the year. Combine both Form 130s correctly.

• Freelancers and consultants paid professional fees cannot claim it, even if they work like employees.