Standard Deduction & Salaried-Employee Benefits: New vs Old Tax Regime

The Standard Deduction: One of the Few Benefits in Both Regimes

The standard deduction is a flat amount deducted from your gross salary (and pension, where applicable) before computing taxable salary income — no bills, proofs, or conditions required. It's automatically applied by your employer while computing TDS and reflected in Form 16.

For related guidance and tools, visit the Income Tax and Salary Hub.

Crucially, the standard deduction is one of the very few deductions retained under the new tax regime, and for TY 2026-27 the new regime actually offers a higher standard deduction amount for salaried individuals than the old regime — making the "default" new regime more attractive for many salaried taxpayers even before considering slab rate differences. Use our calculator to see the exact current figures applied to your salary.

For the connected rule or filing step, see Old vs New Tax Regime Calculator — AY 2026–27.

Salary Benefits Available Under Each Regime

Professional Tax: An Old-Regime-Only Deduction

If you're employed in a state that levies professional tax on salaried employees (e.g., Maharashtra, Karnataka, West Bengal, Madhya Pradesh, Gujarat), the amount deducted from your salary is allowed as a deduction under Section 16(iii) — but only under the old regime. It's typically a small amount (often capped around ₹2,500/year depending on the state slab), so it rarely tips the scales on its own, but it's one more item that disappears under the new regime.

Retirement-Related Exemptions Survive Either Way

Gratuity received on retirement/resignation (after the required years of service), leave encashment on retirement, and VRS compensation continue to enjoy their respective exemptions (subject to monetary limits) regardless of which regime you choose for that year — these are treated as one-time, life-event benefits rather than annual planning deductions, so the regime choice doesn't strip them away.

Employer's NPS Contribution — A Notable Exception

Section 80CCD(2), covering the employer's contribution to your NPS account (as distinct from your own voluntary contribution under 80CCD(1B), which is old-regime-only), remains deductible under both regimes — subject to a percentage-of-salary cap that is higher under the new regime than the old regime. If your employer offers an NPS contribution as part of your CTC structure, this is one of the few "investment-linked" benefits that still works even if you've moved to the new regime.

Putting It Together

For most salaried employees without significant home loan interest, HRA claims, or large 80C investments, the new regime's higher standard deduction plus broader slabs often results in lower tax than the old regime even after accounting for the lost exemptions. But if you have substantial HRA (especially in a metro), an active home loan, and are maxing out 80C/80D, the old regime can still come out ahead — see our regime break-even analysis for a side-by-side comparison using your actual numbers.