Union Budget 2026: Will salaried taxpayers get a higher standard deduction this year?

Will govt increase Standard Deduction in Budget 2026?

• Standard deduction is Rs 75,000 under the new tax regime for salaried taxpayers
• Government unlikely to revise deduction solely for higher urban living costs
• Future changes depend on inflation, finances, and policy simplicity

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As India’s tax system evolves into a simpler, exemption-light structure, the standard deduction has gained significant attention as a key relief for salaried taxpayers, with the budget highlighting it.

With the new tax regime now the default option and offering limited deductions, questions are being raised if the existing standard deduction provides adequate relief amid changing income patterns, inflation trends and evolving work and lifestyle realities.

The standard deduction is a fixed tax benefit available to salaried individuals and pensioners under both the old and new tax regimes, allowing them to reduce their taxable income without any investment or expense proof, with the deduction set at Rs 50,000 under the old regime and Rs 75,000 under the new regime. Under the new tax regime, it serves as one of the few remaining deductions available to salaried taxpayers.

Should the standard deduction under the new tax regime be increased to reflect rising urban living costs?

From a policy standpoint, stability appears to be a key consideration. “Standard deduction in respect of salary income was recently enhanced to Rs 75,000 in Finance Act, 2024 as part of a broader set of tax-relief measure. Given that inflation remains relatively stable and the policy intent of keeping the new regime simple and predictable, the Government may prefer stability in the near term,” said Sudhakar Sethuraman, Partner, Deloitte India.

Also Read: Budget 2026: Will FM Nirmala Sitharaman scrap the old tax regime?

Experts say decisions on where to reside or settle, despite variations in cost of living, remain a matter of individual choice. The tax framework, therefore, adopts a location-neutral approach.

“Tax laws are framed uniformly for the country as a whole and do not provide for deductions based on geographic location, whether urban or rural. While the cost of living is undeniably higher in certain metropolitan cities, it remains significantly lower in many other regions. As a result, it is unlikely that the standard deduction would be revised solely to account for urban living costs," said Neeraj Agarwala, Partner, Nangia & Co LLP.

For now, the standard deduction continues to be a key tax relief for salaried taxpayers under the new tax regime. Any change in the amount will depend on inflation, government finances, and the overall approach to keeping the tax system simple.