Standard Deduction on Salary 2025 – Maximize Your Tax Savings

What is Standard Deduction?

The Standard Deduction on salary simplifies tax filing for salaried individuals by reducing taxable income by a fixed amount, thereby minimizing the overall tax burden. Unlike other deductions, it does not require any proof or disclosures, making it a hassle-free tax benefit.

In Budget 2024, Finance Minister Nirmala Sitharaman increased the Standard Deduction limit from ₹50,000 to ₹75,000. However, this increase applies only under the New Tax Regime, while the deduction remains unchanged at ₹50,000 in the Old Tax Regime. Also, standard deduction limit for family pensioners has been hiked to Rs 25,000 from Rs 15,000.

In Budget 2025, the government further eased the tax burden by increasing the income tax exemption limit to ₹12 lakh per year. With the Standard Deduction of ₹75,000, salaried employees will effectively not pay income tax up to ₹12.75 lakh.

The Standard Deduction remains one of the most widely applicable tax benefits, as it is available to all salaried individuals, regardless of their specific expenses or financial circumstances.

Standard Deduction in New Tax Regime

The Standard Deduction is available under both the Old Tax Regime and the New Tax Regime. However, an increase in the deduction limit was introduced in Budget 2024, but only under the New Tax Regime.

Here’s a breakdown of the Standard Deduction under each regime:

• Old Tax Regime: ₹50,000
• New Tax Regime: ₹75,000

What is the Purpose of Standard Deduction?

The purposes of introducing standard deduction are:

• To reduce paperwork and allow for deductions irrespective of the actual expenses.
• To provide tax relief to middle-class salaried individuals.
• To provide benefits to pensioners.

Who is Eligible to Claim a Standard Deduction?

The standard deduction can be claimed by individuals receiving salary and pension, excluding business owners. However, for the following cases, the standard deduction will not be applicable:-

• Freelancers, business owners, and professionals cannot claim this deduction.
• Family pension (received by legal heirs of a deceased pensioner) is taxed under the head "Income from Other Sources", not "Salaries."
• If a person has income only from rental income, capital gains, interest, or business, they cannot claim the standard deduction.

How Does Standard Deduction Reduce Taxable Income?

The standard deduction is a flat deduction of Rs. 50,000 under old tax regime and Rs. 75,000 under new tax regime on the taxable income of salaried employees and pensioners, irrespective of their earnings. This deduction is straightforward and does not require any evidence or proof of investment. It is provided to cover expenses that are not eligible for deductions under other sections of the Income Tax Act.

For example, if an individual earns a gross annual salary of ₹12,00,000 during the year and the standard deduction on salary in the new tax regime is ₹75,000, their taxable income will be ₹11,25,000. The total tax liability for the year is calculated on this amount, lowering the overall tax burden on the employee.

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Standard Deduction for Pensioners

The legal framework in India recognizes individuals aged between 60 and 80 years as senior citizens, a classification that comes with certain privileges and responsibilities. Specifically, a pension serves as a stipend or periodic allowance granted to individuals, especially senior citizens, in acknowledgment of their past service.

In alignment with the Indian Taxation System, the pension received by senior citizens from their former employers is considered taxable income and falls under the category of 'salaries.' This implies that senior citizens need to adhere to tax regulations applicable to salary income.

Section 16 of the Income Tax Act provides relief to pensioners by allowing them to claim a deduction of up to Rs. 50,000/ Rs. 75,000 per annum or the actual amount of the pension, whichever is less. This provision has a dual effect: it recognizes the financial challenges faced by senior citizens and provides a means to mitigate their tax liability.

Furthermore, the family pensioners can claim a standard deduction of Rs.25,000 from his/her family pension under the new tax regime. Earlier, this limit was Rs.15,000, which was increased to Rs.25,000 in Budget 2025.

Example of Standard Deduction under Old Tax Regime

Example of Standard Deduction under New Tax Regime

How is the Standard Deduction Calculated in the Case of Multiple Employers?

The standard deduction is not available on the basis of no. of employers. The standard deduction on salary is the overall limit for a whole year rather than the no. of employers.

Let’s say Mr. A worked for 2 employers during the FY 2024-25. In this case, Mr. A will be able to claim a standard deduction of Rs.50,000 or Rs.75,000 since the total amount of deduction is not based on the no. of employers the taxpayer has worked with during the year.

Therefore, Mr. A can claim a standard deduction of the respective amount based on the choice of regime from the gross total income of the year.

Documents Required for Standard Deduction

While there is no need to produce any documents for claiming the standard deduction, you must produce the following documents at the time of income tax return filing. Also, it is mandatory to file an ITR to claim the benefit of a standard deduction.

• Bank statements of relevant previous year.
• Income statements from interest or fixed deposits.
• TDS (Tax Deducted at Source) certificates.
• Investment documents.
• Form 26AS and Form AIS.

History of the Standard Deduction

The standard deduction was first introduced in 1974 to simplify tax calculations for salaried individuals. Over time, its limits and percentage have been revised multiple times to keep pace with changes in the tax landscape.

In 2005, Finance Minister P. Chidambaram removed the standard deduction, citing its redundancy in light of expanding income tax slabs and increased exemption limits. However, after a 13-year hiatus, the standard deduction was reinstated in Budget 2018 at ₹40,000.

In the following year, Budget 2019 raised the standard deduction to ₹50,000, benefiting salaried taxpayers. Initially unavailable under the new tax regime, the standard deduction was eventually allowed for individuals opting for the new tax scheme in Budget 2023, maintaining the ₹50,000 limit.

In Budget 2024, which increased the standard deduction under the new tax regime to ₹75,000, while the old tax regime continues to offer a ₹50,000 deduction.

Standard deduction is just one of the many deductions available under the Income Tax Act. However, taxes can be complex and can result in missing out on potential deductions. Taking help from experts can ensure you make the most of available deductions and maximize your tax savings. Get in touch with our tax experts and ensure a hassle-free ITR filing journey. Book online CA now!