Standard Deduction in Old vs New Tax Regime 2026-27: Complete Comparison Guide
The standard deduction is a flat deduction from your gross salary that reduces your taxable income. For FY 2026-27, the standard deduction is ₹75,000 under the new tax regime and ₹50,000 under the old tax regime. While the new regime offers a higher standard deduction, it does not allow other deductions (80C, 80D, HRA, etc.). This guide explains exactly how the standard deduction works under each regime and helps you determine which regime saves more tax. Use our CTC to In-Hand Calculator to compare your tax liability under both regimes.
Standard Deduction: Old Regime vs New Regime
| Aspect | Old Regime | New Regime (Default) |
|---|---|---|
| Standard Deduction Amount | ₹50,000 | ₹75,000 |
| Available For | Salaried employees and pensioners | Salaried employees and pensioners |
| Additional Deductions (80C, 80D, HRA) | Available | Not available |
| Higher of the two? | Lower standard deduction | Higher standard deduction |
Historical Context: How Standard Deduction Evolved
The standard deduction was reintroduced in Budget 2018 (after being removed in 2005) at ₹40,000, replacing the erstwhile transport allowance (₹19,200) and medical reimbursement (₹15,000). It was increased to ₹50,000 in Budget 2019. Under the new tax regime introduced in Budget 2020, the standard deduction was initially not available — it was added later as a concession to make the new regime more attractive. In the 2025 Budget, the standard deduction under the new regime was increased to ₹75,000 (from ₹50,000), making the new regime more beneficial for salaried employees who do not have significant deductions.
How Standard Deduction Affects Your Tax
Example 1: Employee with ₹6 Lakh Salary (Minimal Deductions)
Old Regime: Salary ₹6,00,000 − Standard Deduction ₹50,000 = Taxable ₹5,50,000. Tax under old regime slab: ₹12,500 (5% of ₹2,50,000 above ₹2,50,000) + 4% cess = ₹13,000.
New Regime: Salary ₹6,00,000 − Standard Deduction ₹75,000 = Taxable ₹5,25,000. Tax under new regime: ₹11,250 (5% of ₹2,25,000 above ₹3,00,000) + 4% cess = ₹11,700. (Also, rebate under Section 87A for income up to ₹7 lakh makes tax zero in new regime.)
Verdict: The new regime saves ₹1,300 plus higher standard deduction. At this salary level, the new regime is clearly better.
Example 2: Employee with ₹15 Lakh Salary (Full Deductions)
Old Regime: Salary ₹15,00,000 − Std Deduction ₹50,000 − 80C ₹1,50,000 − 80D ₹50,000 − HRA ₹2,40,000 = Taxable ₹10,10,000. Tax = ₹1,17,000 + 4% cess = ₹1,21,680.
New Regime: Salary ₹15,00,000 − Std Deduction ₹75,000 = Taxable ₹14,25,000. Tax = ₹2,02,500 + 10% surcharge + 4% cess = ₹2,31,660.
Verdict: The old regime saves ₹1,09,980 despite having ₹25,000 lower standard deduction — the additional deductions far outweigh the difference.
Why the Standard Deduction Difference May Not Matter
The ₹25,000 difference in standard deduction (₹75,000 - ₹50,000 = ₹25,000) seems to favour the new regime. However, the old regime allows you to claim Section 80C (₹1.5 lakh), 80D (₹25,000 to ₹1,00,000), HRA (potentially lakhs), and home loan interest (₹2 lakh). The total of these deductions can easily exceed ₹2-5 lakh, far outweighing the ₹25,000 standard deduction advantage of the new regime. The key question is not about standard deduction — it is whether your total deductions exceed approximately ₹2-2.5 lakh per year.
Decision Framework
Choose the new regime if: your total deductions (80C + 80D + HRA + home loan interest + others) are below ₹2,00,000 per year, or you are in the tax rebate zone (income up to ₹7 lakh in new regime = zero tax).
Choose the old regime if: your total deductions exceed ₹2,00,000 per year, or you have significant HRA exemption due to rent paid, or you pay substantial home loan interest.
For personalised comparison, use our CTC to In-Hand Calculator. Our Income Tax Slabs Guide has more detailed examples. For assistance with TDS and payroll compliance, explore our Payroll Services.