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The government provides a Rs 75,000 standard deduction in the new tax regime benefiting salaried individuals and pensioner by simplifying tax filing and reducing tax burden
Standard deduction allows for a fixed amount to be deducted from the taxable income, streamlining the tax calculation process. (Representative/Shutterstock)
Filing income tax in India has been quite complicated and difficult, especially under the old tax regime. However, the current government has implemented several reforms to simplify the process. The most significant of these is the new tax regime.
The government previously introduced a valuable provision known as the Standard Deduction, applicable to both the old and new tax regimes. This deduction effectively reduces your taxable income by a predetermined amount. Currently, this amount stands at Rs 75,000 in the new tax regime, compared to Rs 50,000 in the old tax regime. However, this facility is not universally available to all taxpayers. Let’s delve into who qualifies for this deduction and who doesn’t.
Let’s begin by understanding what standard deduction is. Previously, salaried individuals could claim various small exemptions, such as transport allowance and medical reimbursement. They were required to maintain records for each of these, which often amounted to less than Rs 50,000. Managing these small deductions proved cumbersome for employees, companies, and the government alike.
To simplify the process, the government replaced these individual exemptions with a single standard deduction. This allows for a fixed amount to be deducted from the taxable income, streamlining the tax calculation process.
This means that if one’s annual income is Rs 13 lakh and the standard deduction is Rs 75,000, then the taxable income will be Rs 12.25 lakh.
In the Union Budget 2025-26, Finance Minister Nirmala Sitharaman made income up to Rs 12.75 lakh tax-free under the new tax regime. This budget also saw changes to the new tax slabs, with a total of six tax slabs now in place.
Who Are Eligible For This Facility
This facility is primarily for salaried individuals and pensioners. If you are employed and receive a salary, you are eligible. Additionally, if you receive a pension, whether from the government or a private company, you can also avail of this facility. Senior citizens (above 60 years of age) and super senior citizens (above 80 years of age) also benefit from this facility.
Who Are Ineligible For This Facility
While this facility benefits many, certain individuals and entities are ineligible. This includes self-employed individuals and business owners. Additionally, those whose sole source of income is interest, rent, or capital gains cannot avail themselves of this facility. Furthermore, companies, firms, and other entities are not eligible.
Why Does The Government Provide This Facility
The government provides this standard deduction for several reasons. Firstly, it simplifies tax filing. Previously, individuals had to submit numerous documents to avail themselves of small exemptions, but the standard deduction has streamlined this process.
Secondly, it reduces the tax burden on individuals. When taxable income is lower, the corresponding tax liability also decreases.
Thirdly, this facility benefits salaried individuals and pensioners, as they have limited avenues to claim deductions for expenses incurred to earn their income.