Standard Deduction
Standard deduction is a flat deduction from gross salary income available to all salaried individuals and pensioners under the Income Tax Act, reintroduced in India from FY 2018-19 to replace the earlier transport allowance and medical reimbursement exemptions.
The standard deduction for salaried taxpayers was reintroduced in the Union Budget 2018 (FY 2018-19) at Rs 40,000, replacing two earlier specific exemptions: transport allowance of Rs 19,200 per year and medical reimbursement of Rs 15,000 per year. The Budget 2019 (FY 2019-20) enhanced it to Rs 50,000, where it remained for several years. Union Budget 2024 further increased the standard deduction to Rs 75,000 for salaried individuals under the New Tax Regime, while retaining Rs 50,000 under the old regime.
The standard deduction was procedurally simple: it was a flat subtraction from gross salary income without requiring any documentation, receipts, or proof of expenditure. This distinguished it from deductions like HRA (requiring rent receipts) or Section 80C investments (requiring investment proof). The employer automatically accounted for it while calculating TDS from salary, and it appeared automatically in Form 16 issued by the employer.
Pensioners, including those receiving pension from former employers, were eligible for the standard deduction on pension income treated as salary. However, family pensioners (who received pension after the death of the original pensionee) could claim only one-third of the family pension or Rs 15,000, whichever was lower, as a deduction — a separate provision under Section 57(iia), not the standard deduction.
Under the New Tax Regime (default from FY 2023-24), the standard deduction of Rs 75,000 per year was available to salaried individuals and pensioners — unlike most other exemptions and deductions that were disallowed under the new regime. This was a deliberate policy choice to maintain parity with the old regime for the most basic cost recognition for salaried employees. The higher standard deduction under the new regime was one of the factors designed to make the new regime more attractive relative to the old.
The standard deduction's simplicity made it universal: it was available to all salaried individuals regardless of income level, employment type (private sector, government, or public sector), or whether they had availed of other deductions. Its restoration in 2018 after an absence since FY 2005-06 was widely welcomed as reducing the compliance burden on salaried taxpayers who previously needed to maintain transport and medical expense records.