Standard deduction is a crucial tax relief measure in India that allows salaried employees and pensioners to reduce their taxable income without requiring specific proofs or documents. This article provides a detailed insight into the concept of standard deduction, its historical evolution, the latest changes in Budget 2025, its impact on tax calculations, and a comparison between the old and new tax regimes.
1. What is Standard Deduction?
Standard deduction is a fixed amount subtracted from a taxpayer’s gross salary or pension income before computing taxable income. Unlike deductions under Sections 80C or 80D, which require proof of investment or expenses, standard deduction is an automatic benefit provided to eligible taxpayers.
1.1 Evolution of Standard Deduction in India
- Before 2005: Standard deduction was available but later abolished.
- 2018: Reintroduced at ₹40,000, replacing transport and medical allowances.
- 2019: Increased to ₹50,000.
- 2023: Under the new tax regime, it was raised to ₹52,500 and later revised to ₹75,000 in 2024.
- 2025: Budget 2025 retains the existing deduction limits.
The primary objective of standard deduction is to simplify tax calculations and provide relief to salaried individuals and pensioners.
2. Standard Deduction Under Budget 2025
2.1 Latest Changes in Budget 2025
According to the Union Budget 2025 presented by Finance Minister Nirmala Sitharaman:
- New Tax Regime: Standard deduction remains at ₹75,000 for salaried individuals and pensioners.
- Old Tax Regime: Deduction is retained at ₹50,000.
- Family Pensioners: Deduction increased from ₹15,000 to ₹25,000.
2.2 Impact on Taxable Income
For a salaried individual earning ₹10,00,000 per year:
- Old Tax Regime: Taxable income after standard deduction = ₹9,50,000.
- New Tax Regime: Taxable income after standard deduction = ₹9,25,000.
3. Standard Deduction in Old vs. New Tax Regime
|
Feature |
Old Tax Regime |
New Tax Regime (Post Budget 2025) |
|
Standard Deduction |
₹50,000 |
₹75,000 |
|
Other Deductions (80C, 80D, HRA) |
✅ Allowed |
❌ Not Allowed |
|
Tax-Free Income (Post Deduction) |
₹3,00,000 |
₹12,75,000 |
|
Exemptions on Home Loan Interest |
✅ Yes |
❌ No |
|
Medical Allowance |
✅ Yes |
❌ No |
|
HRA |
✅ Yes |
❌ No |
The new tax regime provides a higher standard deduction but does not allow additional deductions such as Section 80C (PPF, LIC), 80D (health insurance), and HRA.
4. Who Can Claim Standard Deduction?
4.1 Salaried Employees
All individuals earning a salary from an employer (private or government) can claim standard deduction.
4.2 Pensioners
Retired individuals receiving a pension from their former employer are eligible for the deduction.
4.3 Family Pensioners
For those receiving a family pension, the deduction has been increased from ₹15,000 to ₹25,000 as per Budget 2025.
5. Benefits of Standard Deduction
- No Proof Required – Unlike other deductions, no receipts or investment proofs are needed.
- Simplifies Tax Filing – Salaried individuals and pensioners can automatically claim it.
- Reduces Tax Liability – Effectively lowers taxable income and tax burden.
- Applicable in Both Tax Regimes – Unlike many other deductions, standard deduction is retained in both regimes.
6. Limitations of Standard Deduction
- Fixed Amount – The deduction does not vary based on income, which might benefit lower earners less.
- No Additional Benefits in Old Regime – If you use other deductions like 80C, the impact of standard deduction is lower.
- Not Applicable to Business Owners – Only available for salaried individuals and pensioners, not self-employed or freelancers.
7. Should You Opt for the New or Old Tax Regime?
With the latest Budget 2025 updates, choosing between the old and new tax regime depends on your income and deductions:
- If you use multiple deductions (80C, 80D, HRA, etc.), the old regime is better.
- If you prefer a simplified tax system with a higher standard deduction, the new regime is beneficial.
- For those earning above ₹12.75 lakh annually, the new regime provides significant tax benefits.
Conclusion
The standard deduction remains a crucial tax benefit in India. While Budget 2025 retained the existing limits, it continues to play an essential role in reducing taxable income for millions of salaried individuals and pensioners.
*Tax benefits are as per the Income Tax Act, 1961, and are subject to any amendments made thereto from time to time’
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