Under the new tax regime, salaried employees are entitled to a standard deduction of ₹75,000 or their actual salary, whichever is lower. According to tax expert Balwant Jain, pensioners receiving benefits under the Employees' Pension Scheme (EPS), pension from a former employer, or corporate National Pension System (NPS) may claim this standard deduction when filing their income tax returns for FY 2025-26 (AY 2026-27). However, employees can claim only ₹50,000 or their salary, whichever is lower, if they have opted for the old tax regime.
Pension received under the Employees' Pension Scheme (EPS), 1995, administered by the Employees' Provident Fund Organisation (EPFO) is taxable under the head 'Salaries' because it arises from employment. Similarly, pension received from a former employer or under a corporate NPS also qualifies as salary income. Since these pensions are taxed as salary, eligible pensioners can claim the standard deduction. As reported by tax expert Balwant Jain, pension received from an employer-purchased annuity is also eligible for the standard deduction since it is treated as salary income.
The standard deduction cannot be claimed on annuity income from an individual NPS account or an annuity purchased using LIC policy proceeds. According to Jain, the standard deduction against salary income does not apply to such annuity income because it is typically taxed under the head 'Income from Other Sources'. However, there is an exception if the employer bought the annuity on behalf of the employee, in which case the pension received from that annuity is eligible for the standard deduction since it is treated as salary income.
EPS pension example: Awadesh, a retired private-sector employee receiving ₹5 lakh annually as EPS pension from EPFO, can claim the standard deduction of ₹75,000 under the new tax regime. Individual NPS annuity example: Radha receiving ₹4 lakh annually from her individual NPS annuity cannot claim the standard deduction because it is taxed under 'Income from Other Sources'. LIC annuity example: Neeraj purchasing an annuity using LIC policy proceeds and receiving ₹3 lakh annually cannot claim the standard deduction since it is not taxed as salary. Employer-purchased annuity example: Jaya receiving ₹7 lakh annually from employer-purchased annuity can claim the standard deduction since the annuity was purchased by her employer and treated as salary income.
