Introduction
In a significant update for salaried taxpayers, the Indian government has officially clarified that a ₹75,000 standard deduction is available under the New Tax Regime (Section 115BAC). This clarity has been provided through the Taxation Laws (Amendment) Bill, 2025 and incorporated into the New Income Tax Bill, 2025. This move aims to resolve any confusion and ensure the intended tax benefits are accessible as announced in the Budget 2024.
What’s the Issue and Resolution?
Though the Budget 2024 had announced an increase in the standard deduction from ₹50,000 to ₹75,000 under the new tax regime, a drafting oversight in the Income Tax Act prevented salaried taxpayers from actually claiming this increased deduction. The amendment corrects this, clearly stating:
“The income chargeable under the head ‘Salaries’ shall be computed after… a deduction of fifty thousand rupees… Provided that… in a case where income-tax is computed under… section 115BAC…the words ‘seventy-five thousand rupees’ shall be substituted.”
Why It Matters
- Tax Savings Up to ₹12.75 lakh
With the ₹75,000 standard deduction, salaried individuals under the new tax regime can reduce their taxable income enough to potentially fall under the zero-tax threshold of ₹12 lakh—thus paying no tax for incomes up to ₹12.75 lakh. - Section 87A Rebate Still Applies (with Exceptions)
The enhanced Section 87A rebate allows tax-free income up to ₹12 lakh. However, certain incomes—like short-term capital gains (STCG) taxed at special rates—do not qualify for this rebate even if total income is within the threshold. - Drafting Fix Upholds Original Intent
Tax professionals highlighted the omission in clause (iii) of Section 115BAC(1A). The amendment reinstates the intention of Budget 2024 by enabling the ₹75,000 deduction for FY 2025-26 (AY 2026-27).
Timeline & Applicability
- Announced: Budget 2024 (finance year 2024-25)
- Drafting Error Detected: Early 2025 legislative drafts
- Correction Passed: August 2025, via Taxation Laws (Amendment) Bill and New Income Tax Bill
- Effective From: FY 2025-26 / Assessment Year 2026-27
Practical Takeaways for Salaried Taxpayers
| Category | Details |
|---|---|
| Standard Deduction | ₹75,000 under new tax regime (₹50,000 under old regime) |
| Tax-Free Threshold | Up to ₹12.75 lakh (with standard deduction and Section 87A rebate) |
| Rebate Scope | Section 87A applies to slab income up to ₹12 lakh; does not cover special incomes like STCG |
| Impact | Salaried individuals earning up to ₹12.75 lakh can potentially pay zero tax under the new regime—provided no ineligible incomes like STCG are involved. |
Conclusion
By amending the Income Tax law to explicitly include the ₹75,000 standard deduction within the new tax regime, the government has ensured Budget 2024’s tax relief vision for salaried employees remains intact. For many middle-income earners, this correction translates into meaningful tax savings—especially when paired with the elevated Section 87A rebate.
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