Last Updated on February 2, 2025 by IPO Manthan Team
The Union Budget 2025-26 has kept the increase in standard deduction to ₹75,000 intact for salaried individuals and pensioners under the new tax regime. This move, first introduced in 2024, continues to provide tax relief while simplifying the filing process.
For those under the old tax regime, the standard deduction remains at ₹50,000 for salaried employees and pensioners, and ₹15,000 for family pensioners. However, under the new tax regime, family pensioners will now get a ₹25,000 deduction, up from ₹15,000 earlier.
What is the Standard Deduction?
The standard deduction is a fixed amount deducted from your salary or pension before calculating taxable income. It does not require any proofs or expenses, making it a simple way to reduce tax liability.
The latest increase in standard deduction benefits taxpayers by lowering taxable income and boosting take-home salary.
How Much Tax Can You Save?
The new ₹75,000 standard deduction means lower taxable income and significant tax savings, especially for middle-class salaried employees. Here’s how it impacts taxation:
1. Tax-Free Income Limit Increased
With the increase in standard deduction, the tax-free income limit under the new tax regime is now ₹12.75 lakh per annum. This means if your salary is ₹12.75 lakh or less, you will pay zero tax.
2. Taxable Income Reduction
For example, if an individual has a ₹10 lakh salary, their taxable income will be:
Taxable Income=Gross Salary−Standard Deduction =10,00,000 − 75,000 = 9,25,000
This directly lowers tax liability, leading to higher savings.
3. Tax Savings for High-Income Earners
If a taxpayer falls under the 30% tax bracket, the increase in the standard deduction from ₹50,000 to ₹75,000 translates into savings of:
Tax Savings = Increase in Deduction × Tax Rate = 25,000 × 0.30 = 7,500 = 7,500
So, individuals in the highest tax slab can save up to ₹7,500 annually without making any investments or tax declarations.
Comparison: Old vs. New Tax Regime
| Feature | New Tax Regime | Old Tax Regime |
|---|---|---|
| Standard Deduction | ₹75,000 | ₹50,000 |
| Family Pension Deduction | ₹25,000 | ₹15,000 |
| Other Deductions | Limited options | Multiple options (80C, HRA, LTA) |
| Tax Slabs | Lower tax rates | Higher tax rates |
Should You Choose the New or Old Tax Regime?
The increase in standard deduction makes the new tax regime more attractive. However, taxpayers who claim large deductions under Section 80C, HRA, and LTA may still benefit from the old tax regime.
- If you prefer simplicity and no investment commitments, the new tax regime with a ₹75,000 standard deduction is a better choice.
- If you have home loans, high insurance premiums, or major deductions, the old tax regime may still be beneficial.
Why is the Standard Deduction Important?
- Reduces Tax Burden: No need for complex calculations—₹75,000 is deducted automatically from taxable salary.
- Encourages More Disposable Income: With less tax deducted, salaried individuals have more money to spend or invest.
- Simplifies Tax Filing: Unlike deductions under Section 80C or HRA, there’s no need to submit proofs for claiming the standard deduction.
How Family Pensioners Benefit
A key highlight in Budget 2025 is the increase in standard deduction for family pensioners under the new tax regime.
- Earlier, family pensioners received only ₹15,000 as a deduction.
- Now, they can claim ₹25,000, reducing their taxable income and overall tax liability.
This move ensures better financial relief for senior citizens who rely on pensions as their primary income source.
What Does This Mean for the Middle Class?
The increase in standard deduction is a major boost for the middle-class salaried population. Since there are no changes in tax slabs, this deduction is one of the few ways to reduce tax liability without additional investments.
For a typical salaried employee:
- Less tax means more savings.
- More savings means better financial security.
Final Thoughts
The increase in standard deduction to ₹75,000 makes taxation simpler and provides direct savings to salaried individuals and pensioners. While the new tax regime benefits those with fewer deductions, taxpayers with significant exemptions might still find the old tax regime useful.
With tax-free income now at ₹12.75 lakh, middle-class earners stand to benefit significantly. Whether you choose the new or old tax regime, understanding these changes will help you maximize your tax savings.