What is standard deduction for salary, pension income post Budget 2025?

The standard deduction was last hiked in Interim Budget 2024, but only in the new tax regime

In Budget 2025, Finance Minister Nirmala Sitharaman maintained the standard deduction benefit for salaried individuals and pensioners under both the old and new tax regimes. Despite speculation that the government might raise the standard deduction to provide tax relief to the middle class, these expectations now remain unfulfilled.

 

What is standard deduction?

 

The standard deduction is a flat amount deducted from taxable salary income, allowing taxpayers to reduce their taxable income without submitting any proof or disclosures. 

 

For example, if one has an annual taxable income of Rs 10,00,000 and the individual qualifies for a standard deduction of Rs 75,000, the taxable income gets reduced to Rs 9,25,000.

 

What is standard deduction in new and old tax regimes?

 

Under the new tax regime, salaried employees and pensioners will be eligible for a standard deduction of Rs 75,000. This increases the tax-free income limit to Rs 12.75 lakh for salaried individuals, factoring in the revised Rs 12 lakh nil-tax threshold announced in the budget.

 

For those choosing the old tax regime, the standard deduction remains at Rs 50,000. The old regime still provides additional exemptions and deductions, such as those under Section 80C (up to Rs 1.5 lakh), Section 80D (for health insurance), and HRA benefits.

 

“Despite speculations, the standard deduction of Rs 75,000 from salary and pension income has not been increased in the Budget 2025. While the finance minister addressed the deduction amount, it was only to emphasise the limit for salaried tax payers and not to introduce any change,” said Kunal Savani, partner, Cyril Amarchand Mangaldas.

 

“Finance Minister Nirmala Sitharaman, in Budget 2025, retained the standard deduction benefit for salaried individuals and pensioners under both the old and new tax regimes. Under the new tax regime, salaried employees and pensioners will get a standard deduction of Rs 75,000,” said Rajarshi Dasgupta, executive director, AQUILAW.

 

When was standard deduction last increased?

 

With effect from FY 2024-25, the standard deduction under the new income tax regime has been raised from Rs 50,000 to Rs 75,000. However, there has been no change under the old tax regime, where salaried taxpayers can still claim a standard deduction of Rs 50,000. 

 

Additionally, the standard deduction limit for family pensioners has been increased to Rs 25,000, up from Rs 15,000 in the previous Budget.