What Is the Standard Deduction on Salary in India?
The standard deduction on salary in India is 75,000 rupees in the new regime and 50,000 in the old regime for FY 2024-25, automatically reducing your taxable salary income. It applies to salaried employees and pensioners, but not to freelancers or business owners.
The standard deduction on salary in India is a flat amount subtracted from your ctc/payslip-different-from-offer-letter-salary">gross salary income before tax is calculated. For the financial year 2024-25, it is 75,000 rupees under the new 80c/tax-saving-1-5-lakh-80c">tax regime and 50,000 rupees under the old regime. You do not have to submit any bill or proof to claim it; the deduction applies automatically.
Understanding what is lpa-meaning-job-offer">ctc in salary and how the standard deduction reduces your taxable income helps you plan the year better. It also explains why the new regime often wins for people with moderate salaries, even without heavy tax-saving savings-schemes/scss-maximum-investment-limit">investments.
How the standard deduction works in a payslip
When your employer calculates TDS (fd">tax deducted at source) every month, it first computes your gross salary for the year. Then it subtracts the standard deduction. The remaining number is what is called taxable salary income. Tax rates are applied only to this reduced figure.
For example, a salary of 10 lakh rupees a year under the new regime becomes 9.25 lakh rupees of taxable salary after the 75,000 rupee standard deduction. The slab rates then run against 9.25 lakh, not 10 lakh.
Who qualifies for the standard deduction
This benefit is available to salaried employees and pensioners. Self-employed professionals and business owners do not get this deduction because their income is taxed under different heads.
- Salaried employees with a formal employer-employee relationship
- Pensioners receiving pension from a former employer
- Family pensioners receive a different deduction under Section 57 (not the standard deduction)
- Freelancers and consultants do not get this deduction even if their income pattern looks like a salary
If you receive both salary and pension in the same year, the standard deduction is claimed only once across the combined income, not twice.
Standard deduction and what is ctc in salary
CTC or Cost to Company is the full cost your employer incurs to employ you. It includes base salary, HRA, special money/financial-education-adopted-children">allowances, employer provident fund contributions, gratuity accrual, and any perquisites.
The standard deduction applies to the taxable salary, not the full CTC. A large chunk of CTC is already exempt from tax (PF employer contribution up to statutory limits, gratuity accruals, and specific perquisites). The standard deduction then shaves another slice off what remains as taxable.
| Salary component | Part of CTC | Taxable | Eligible for standard deduction |
|---|---|---|---|
| Basic salary | Yes | Yes | Yes |
| HRA (received) | Yes | Partly (old regime with rent proof) | Yes, on the taxable portion |
| Employer PF contribution | Yes | No (within limits) | No |
| Gratuity accrual | Yes | No (until received) | No |
| Bonus and incentives | Yes | Yes | Yes |
How the deduction grew over the years
The standard deduction was reintroduced in 2018 after a long gap. It has moved several times since.
- FY 2018-19: 40,000 rupees introduced to replace transport and medical allowances
- FY 2019-20 onwards: raised to 50,000 rupees
- FY 2023-24 (new regime): raised to 50,000 in the new regime too
- FY 2024-25 (new regime): raised again to 75,000 rupees, old regime stays at 50,000
The gap between the two regimes is now a direct incentive for salaried workers to migrate to the new regime, especially if they do not have big deductions under the old one.
Why the standard deduction matters more than it looks
At first glance, 75,000 rupees looks small next to a 10 lakh salary. The real benefit shows up when you calculate the tax saved across income levels.
- Salary 6 lakh: saves 3,750 rupees a year (at 5 percent slab)
- Salary 10 lakh: saves 11,250 rupees a year (at 15 percent slab)
- Salary 15 lakh: saves 15,000 rupees a year (at 20 percent slab)
- Salary 25 lakh: saves 22,500 rupees a year (at 30 percent slab)
Over a 30-year career, the etfs-and-index-funds/nifty-50-etf-10-lakh-20-years">compounding impact is significant. If the saved money is invested in equity at 11 percent, a mid-career employee can build an extra 15 to 20 lakh rupees in the long run simply from the standard deduction being channelled into a SIP.
The standard deduction is a silent, no-effort tax benefit. Most salaried employees never actively claim it because it is automatic, but invested wisely it builds a sizeable corpus over a working life.
Does the standard deduction apply to bonuses and stock options?
Yes, as long as these are taxed under the head of "Salaries". Bonuses, performance incentives, and exercised stock options are all added to salary income for tax calculation, and the standard deduction reduces the combined amount. However, the deduction is a flat 75,000 per year, regardless of how large the bonus gets.
If you receive arrears of salary in a given year, those arrears are also salary income. The standard deduction still stays capped at 75,000 for the year, but you may be eligible to claim Section 89 relief separately if arrears relate to prior years.
Can you claim standard deduction from multiple employers?
Only once across the year. If you change jobs midway, you still get only one 75,000 rupee deduction for the financial year, not one from each employer. Many employees claim it inadvertently with both employers during TDS calculation and then pay extra tax at filing time. Avoid this by informing the new employer about the salary drawn at the old one.
For official confirmation of current thresholds, check the Income Tax Department portal each April after the annual budget.
Key takeaways
The standard deduction is a straight-line tax saver that needs zero paperwork. It applies to salary and pension income, not to freelance or business income. The new regime gives 75,000 rupees while the old regime gives 50,000, which alone can swing the choice of regime for many middle-income salaried Indians. Understanding what is ctc in salary and where the standard deduction fits inside it helps you read your payslip with confidence and plan your tax outgo without surprises.
Frequently Asked Questions
- What is ctc in salary and how does it relate to the standard deduction?
- CTC is the total cost your employer bears to employ you, including base salary, allowances, and benefits. The standard deduction applies only to the taxable portion of your salary, not the full CTC. Non-taxable components like employer PF and gratuity accruals are excluded.
- Can freelancers claim the standard deduction?
- No. Freelancers earn under the head of income from business or profession, not salary. They can claim actual business expenses instead. A freelancer converting to full-time employment becomes eligible for the standard deduction in that year's salary period.
- Is the standard deduction different for senior citizens?
- No, the standard deduction amount is the same for all salaried taxpayers and pensioners regardless of age. Senior citizens get separate benefits elsewhere, like higher basic exemption limits under the old regime and specific deductions under Section 80TTB.
- Does the standard deduction change if I switch jobs mid-year?
- No. You can claim only one standard deduction of 75,000 rupees per financial year across all employers combined. When joining a new employer, share your old salary details so the new employer does not re-apply the deduction.
- Is the standard deduction available for income from house property or capital gains?
- No. The standard deduction applies only to salary and pension income. House property income has its own standard deduction of 30 percent of net annual value, and capital gains are taxed separately at special rates without any standard deduction.