Budget 2025: What standard deduction really is & how it impacts salaried class, pensioners

With all eyes on Finance Minister Nirmala Sitharaman's eighth Budget speech, due at 11 am on Saturday, February 1, it is an apt time to learn about some of the key concepts within the world of income tax. A standard deduction is a fixed amount of money automatically deducted from a salaried individual or pensioner's annual taxable income, thereby reducing their income tax liability. Read on to learn about this income tax deduction for the salaried and pensioners in detail. 

Standard Deduction Under Old Income Tax Regime 

Currently, a standard deduction of Rs 50,000 is available to eligible income tax assessees—individuals earning salaries and receiving pensions—under the old income tax regime. 

Standard Deduction Under New Income Tax Regime 

At the same time, a standard deduction of Rs 75,000 is available to eligible income tax assessees under the new income tax regime.

It is worth noting that before changes announced in Budget 2024-25, announced in July 2024, this standard deduction was at Rs 50,000. 

It was in the first Budget of the Narendra Modi 3.0 government that the standard deduction was increased by 50 per cent to Rs 75,000.  

The increase in standard deduction was aimed at providing some relief to income tax payees. 

Many tax experts believe that the announcement was also aimed at boosting the appeal of the new regime. 

Standard Deduction Examples

New vs Old Income Tax Regime 

In case an individual's gross annual salary is Rs 10 lakh (before deductions), applying the standard deduction will reduce the taxable income by Rs 75,000 under the new regime and by Rs 50,000 under the old regime, barring other deductions.  

History of Standard Deduction

The Modi administration reintroduced standard deduction, which was abolished in 2005, in 2018 in place of transport and medical allowances.

A standard deduction of Rs 40,000 was announced in 2018. 

Who can avail the standard deduction?

The standard deduction is available to salaried individuals and retired assessees receiving pension.

It does not apply to income tax assessees who file their returns as Hindu Undivided Families (HUFs).

Documents Needed to Avail Standard Deduction

Under current tax laws, there is no need to submit any document to claim the standard deduction under the new as well as old tax regimes as long as the assessee meets the basic requirement of being a salaried individual or a retiree receiving a pension.

However, it is mandatory to produce the receipt of salary or pension (whichever is applicable) in order to benefit from this income tax deduction.