Govt Clarifies Rs 75,000 Standard Deduction For Salaried Employees In New Tax Regime

The government has put an end to the confusion over the standard deduction available to salaried taxpayers under the new tax regime. It has now been formally written into law that from April 1, 2026, a deduction of Rs 75,000 will apply while computing taxable salary income under the new tax regime.

Union Minister of Finance Nirmala Sitharaman confirmed the change on social media platform X (formerly Twitter), calling it a move to “bring clarity” to how the new regime works. The higher deduction was first announced in Union Budget 2024, but because of a slip in the drafting of the Finance Act 2025, the benefit was not clearly applicable for the current financial year. 

The clause that should have covered assessment year 2026-27 had simply been left out, meaning only the previous deduction of Rs 50,000 was technically in force. This oversight has now been fixed through the Taxation Laws (Amendment) Bill, 2025 which was passed in Parliament this week alongside the New Income Tax Bill, 2025. This again puts it into perspective that standard deduction under the old tax regime remains to be Rs 50,000 and Rs 75,000 under the new tax regime.

What it Means for Taxpayers

The correction is more than a technical clean-up. It directly impacts how much salary a taxpayer will take home without paying any tax in the new regime.

Budget 2025 had also raised the Section 87A rebate for residents under the new regime to Rs 60,000 for taxable incomes up to Rs 12 lakh. When that is combined that with the Rs 75,000 standard deduction, a salaried person earning Rs 12.75 lakh a year under the new regime would see their taxable income fall to Rs 12 lakh. The slab-based tax on that amount comes to Rs 60,000, which will further be offset by the rebate available under Section 87A.

But there is a catch, this benefit only applies to slab-rated income. If part of your earnings is taxed at special rates, for instance, short-term capital gains (STGC) under Section 111A or long-term capital gains (LTCG) under Section 112, the rebate will not apply to that portion.

Slab Rates from FY 2026-27

The New Income Tax Bill, 2025, also lays out the slab structure that will apply from the next financial year:

Up to Rs 4,00,000 – Nil

Rs 4,00,001 to Rs 8,00,000 – 5 per cent

Rs 8,00,001 to Rs 12,00,000 – 10 per cent

Rs 12,00,001 to Rs 16,00,000 – 15 per cent

Rs 16,00,001 to Rs 20,00,000 – 20 per cent

Rs 20,00,001 to Rs 24,00,000 – 25 per cent

Above Rs 24,00,000 – 30 per cent

These rates apply to individuals, Hindu Undivided Families (HUFs), and certain other entities opting for the new tax regime.

Other Clarifications in the Amendment

The amendment has also addressed another long-pending matter, the tax treatment of the Unified Pension Scheme (UPS). Contributions to UPS will now get the same tax benefits as those available for the National Pension System (NPS).

With these changes now signed off, the rules will apply in full from the financial year 2026-27. With this, the formal rollout of the new tax regime’s structure, slabs, rebate, and standard deduction, is just one year away alongside the upcoming New Income Tax (No 2) Bill 2025.