Union Budget 2026: Will FM Sitharaman Raise Standard Deduction for Salaried Taxpayers?

Ahead of Union Budget 2026, salaried taxpayers and pensioners anticipate an increase in the standard deduction due to rising living costs.

As household expenses continue to climb, salaried employees and pensioners are once again looking to the Union Budget for relief. With Finance Minister Nirmala Sitharaman set to present Union Budget 2026 on Sunday, February 1, expectations are high that the government may increase the standard deduction to ease the tax burden on the middle class.

For many taxpayers, a higher standard deduction is seen as the simplest and most effective way to increase take-home income without adding complexity to the tax system.

Why Standard Deduction Matters to the Middle Class

Unlike other tax benefits that depend on investments or expense proofs, the standard deduction offers direct relief. It automatically reduces taxable salary income and applies equally to salaried individuals and pensioners.

With costs related to housing, commuting, healthcare and work rising steadily, experts argue that the current limits no longer fully reflect the financial pressures faced by taxpayers.

What Taxpayers Get Right Now

At present, the standard deduction differs depending on the tax regime chosen:

• Rs 50,000 under the old income tax regime
• Rs 75,000 under the new income tax regime

These deductions apply by default to salaried taxpayers and pensioners, regardless of their income level.

Experts Call for a Bigger Hike

Several tax experts believe the time is right for a more meaningful increase. Balwant Jain, a Mumbai-based tax and investment expert, has suggested linking the standard deduction to a fixed percentage of income, with an upper cap of Rs 1 lakh, irrespective of the tax regime.

Sharing a similar view, Abhishek Soni, CEO and co-founder of Tax2win, said the deduction should be raised to Rs 1,00,000 to better match today's living and work-related expenses. He also suggested that defence personnel should be granted a higher standard deduction, given the unique demands of their service.

What Exactly Is Standard Deduction?

Standard deduction is a flat amount subtracted from salary income while calculating taxable income. It is available automatically, meaning taxpayers do not need to submit bills, receipts, or proof of spending to claim it.

Because of its simplicity, the deduction is particularly beneficial for pensioners and salaried individuals who do not claim multiple exemptions.

How Standard Deduction Has Changed Over the Years

Successive governments have revised the standard deduction to provide relief to salaried taxpayers.

In Budget 2018, then Finance Minister Arun Jaitley introduced a standard deduction of Rs 40,000, replacing transport allowance and medical reimbursement. He had said the move would benefit both salaried employees and pensioners, with a revenue impact of about Rs 8,000 crore.

Finance Minister Sitharaman increased the deduction to Rs 50,000 in her maiden Budget in 2019.

In Budget 2023–24, the government extended the benefit of standard deduction and family pension deduction to the new tax regime, which earlier allowed it only under the old system.

A further boost came in Budget 2024–25, when the standard deduction under the new tax regime was raised from Rs 50,000 to Rs 75,000, strengthening the government’s push towards a simpler tax structure.