Standard Deduction Under New vs Old Regime
The standard deduction is available under both tax regimes but at different amounts. Under the new tax regime (default from FY 2023-24), the standard deduction is ₹75,000 — increased from ₹50,000 in Budget 2024, effective FY 2024-25. Under the old tax regime, it remains ₹50,000. The deduction is applied under Section 16(ia) before computing net salary income. It is deducted from gross salary after subtracting exempt allowances under Section 10 but before applying Chapter VI-A deductions.
Who Gets the Standard Deduction
Standard deduction is available to: salaried employees receiving salary from one or more employers; pensioners receiving pension from a former employer (pension is treated as salary under Section 17(1)); and individuals receiving salary from a foreign employer while being resident in India. It is not available to self-employed individuals, freelancers, or business owners — they can claim actual business expenses instead. If you have salary income from two employers in the same year (job change), you get only one standard deduction of ₹75,000/₹50,000 in total — not one per employer.
Impact on Zero-Tax Threshold
The combination of standard deduction and Section 87A rebate creates an effective zero-tax threshold for salaried individuals. Under the new regime for FY 2025-26: gross salary up to ₹12.75 lakh results in zero tax. This is because ₹75,000 standard deduction reduces taxable income to ₹12 lakh, and the Section 87A rebate covers the full tax on ₹12 lakh (₹60,000). Under the old regime: a salaried person with ₹5.5 lakh gross salary, ₹50,000 standard deduction, and ₹1 lakh in 80C investments has taxable income of ₹4 lakh — zero tax after Section 87A rebate.
Standard Deduction vs Professional Tax
Section 16 provides three deductions from salary: (i) standard deduction under Section 16(ia); (ii) entertainment allowance under Section 16(ii) — only for government employees, limited to ₹5,000 or 20% of salary or actual, whichever is least; and (iii) professional tax under Section 16(iii) — the actual professional tax deducted by the employer (up to ₹2,500 per year). All three are deducted from gross salary to arrive at income chargeable under the head "Salaries". Professional tax deduction is available under both old and new regimes.