Standard deduction hike in Union Budget 2026: What can salaried taxpayers, pensioners expect?

Salaried taxpayers are anticipating that Finance Minister Nirmala Sitharaman will raise the standard deduction in the Union Budget 2026, which will be unveiled on Sunday, February 1, 2026, given the rising cost of living.

A greater standard deduction, according to many experts, would provide immediate and direct tax relief, particularly for middle-class people and pensioners.

Demand for increasing the standard deduction

The idea of raising the standard deduction even further is still being discussed. Salaried workers and retirees currently receive a flat deduction of ₹50,000 under the previous tax system and ₹75,000 under the current one.

Regardless of the tax regime selected, Mumbai-based tax and investment expert Balwant Jain has proposed "tying the standard deduction to a fixed percentage of income with an upper ceiling of ₹1 lakh".

The standard deduction under the new tax regime currently stands at ₹75,000.

“Given rising living and work-related expenses, the standard deduction should be increased to ₹1,00,000,” said Abhishek Soni, CEO & Co-founder, Tax2win, adding that defence personnel should get a higher deduction.

What is the standard deduction?

Standard deduction under the old and new tax regimes

For FY 2025–26 (AY 2026–27), the standard deduction available is:

• Old income tax regime:  ₹50,000

• New income tax regime:  ₹75,000

This deduction is available to salaried employees and pensioners by default, irrespective of their income level.

What previous Budgets said about the standard deduction

Over the years, the standard deduction has been revised multiple times to provide relief to salaried taxpayers and pensioners.

"In order to provide relief to salaried taxpayers, I propose to allow a standard deduction of ₹40,000/- in lieu of the present exemption in respect of transport allowance and reimbursement of miscellaneous medical expenses. This decision to allow standard deduction shall significantly benefit the pensioners also, who normally do not enjoy any allowance on account of transport and medical expenses. The revenue cost of this decision is approximately ₹8,000 crores," said then Finance Minister Late Arun Jaitley while presenting the Budget 2018.

Nirmala Sitharaman presented her maiden budget on 5 July 2019. "Standard deduction for salaried taxpayers and pensioners was further increased to ₹50,000," she announced while presenting the Budget 2019.

"Standard deduction of ₹50,000 to a salaried individual, and deduction from family pension up to ₹15,000, is currently allowed only under the old regime. It is proposed to allow these two deductions under the new regime also," FM Sitharaman announced in Budget 2023-24.

Presenting the Budget for 2024-25 in the Lok Sabha, Finance Minister Sitharaman said the standard deduction for salaried employees will be hiked to ₹75,000 from ₹50,000 under the new income tax regime in FY25.

What lies ahead?

It remains to be seen whether the standard deduction will be revised again in Budget 2026, especially given the difference in deduction limits under the old and new tax regimes. A further increase could provide meaningful relief to salaried taxpayers and pensioners amid rising expenses.

Tax relief announced in the Union Budget 2025