How much is the standard deduction in income tax?

Understanding the Standard Deduction in India’s Income Tax System

When filing income tax returns, one of the most commonly claimed benefits is the standard deduction. Introduced to provide relief to salaried employees and pensioners, this flat deduction simplifies tax planning and reduces taxable income without requiring any documentation.

Under the old tax regime, the standard deduction is set at Rs. 50,000. This means that regardless of your salary or pension income, you can automatically reduce your taxable income by this amount. It replaced the earlier transport and medical allowances, streamlining the process and offering broader benefits.

However, with the introduction of the new tax regime in recent years, the government increased the standard deduction to ₹75,000 to make the lower tax rates more attractive. This higher deduction is particularly beneficial for middle-income earners who opt for the simplified tax structure with fewer exemptions and deductions.

It’s important to note that the standard deduction is available only to salaried individuals and pensioners—self-employed professionals and business owners don’t qualify. Also, you must choose the applicable regime carefully, as switching between old and new regimes can impact your overall tax liability.

While the old regime allows for multiple deductions under sections like 80C and 80D, the new regime offers lower tax rates and the higher standard deduction in exchange for forgoing most exemptions. For many, especially those with fewer investments or claims, the new regime with a ₹75,000 deduction can result in lower taxes.

In summary, whether you're a salaried worker or a retiree, understanding the standard deduction—and which regime suits your financial profile—can go a long way in optimizing your tax savings.