Union Budget 2026: Are you eligible for standard deduction in FY27?

Standard deduction cannot be claimed on freelance, interest, rental or business income, say experts

The Union Budget 2026 has not changed the standard deduction limits, but it remains one of the most important tax breaks for salaried individuals and pensioners under both tax regimes. For FY27, the deduction stands at Rs 75,000 under the new tax regime and Rs 50,000 under the old regime.

 

Tax experts say this fixed deduction continues to play a critical role in reducing taxable salary and, in many cases, bringing total income within the zero-tax rebate threshold.

 

Who gains the most?

“The standard deduction is more beneficial for low-income and middle-class taxpayers or taxpayers paying taxes under lower slab rates,” said SR Patnaik, partner (head – taxation), Cyril Amarchand Mangaldas. He noted that the deduction can pull taxable income into a lower slab, cutting tax outgo and improving take-home pay.

 

Ritika Nayyar, partner at Singhania & Co, said the Rs 75,000 deduction under the new regime effectively supports those earning up to about Rs 12.75 lakh. “It continues to benefit those earning income up to Rs 12.75 lakh, as it effectively brings their tax liability to nil,” she said, referring to the interaction with rebate provisions.

 

How it works with mixed income?

Experts stress that the deduction applies only to salary and pension income, not to freelance, interest, rental, or business income.

 

“It is important for taxpayers with mixed income to segregate receipts under different heads. As the standard deduction is available against salary, it should be claimed only against that component,” Patnaik said.

 

Nayyar added that freelance income is treated as business income, where separate expense deductions may be available, while rental income gets a separate 30 per cent repair and maintenance deduction. These operate independently of standard deduction.

 

Mistakes to avoid

A frequent error is claiming the deduction more than once when switching jobs.

 

“One assessee can only claim a total of Rs 75,000 in the final consolidated return, even if two Form 16s show it,” Nayyar said. She also flagged wrong claims on non-salary income and omission of bonuses from gross salary.

 

Patnaik noted that some taxpayers incorrectly report all receipts as salary and claim deduction on the full amount, which is not permitted.

 

Role in rebate and regime choice

Patnaik explained that standard deduction reduces taxable income before tax is computed, while rebate reduces tax after calculation. Under the new regime, a Rs 75,000 deduction combined with rebate can make income up to Rs 12 lakh tax-free, whereas the old regime offers Rs 50,000 deduction with a lower rebate limit.

 

Experts advise computing tax under both regimes before choosing, as the old regime still allows other exemptions and deductions not available in the new system.