ITR 2026: Are pensioners eligible for the same standard deduction as salaried employees?

Pensioners receiving their own retirement pension are eligible for the same standard deduction as salaried employees while filing ITR for AY 2026–27, since pension income is treated as ‘salary’ under the Income Tax Act (ITA), 1961. 

As per Section 16(ia) of the ITA, 1961 [corresponding to Section 19(1) Table SI. No. 2 of ITA 2025] under the concessional (new) tax regime, eligible pensioners can claim a standard deduction of Rs. 75,000, while under the old regime, the deduction remains Rs. 50,000.

Is there a difference between a pension and a family pension for claiming the standard deduction?

Pension received by a retired employee is treated as salary income under the provisions of the Act and is taxable under the head “Salaries.” Consequently, pensioners are eligible to claim the standard deduction under Section 16(ia), being Rs. 50,000 under the old tax regime and Rs. 75,000 under the new tax regime.

However, family pension, which is received by the spouse or legal heir after the demise of the employee, is not regarded as salary income due to the absence of an employer-employee relationship. Such income is taxable under the head “Income from Other Sources” in accordance with Section 56 of the ITA 1961 [corresponding to section 92 of ITA 2025]. 

CA (Dr.) Suresh Surana says, accordingly, the standard deduction under Section 16(ia) is not available in respect of family pension. Instead, recipients of family pension may claim a specific deduction under Section 57(iia) of the ITA 1961 [corresponding to section 93(1)(d) of ITA 2025], which permits a deduction of the lower of:

One-third of the family pension received, or

Rs. 15,000 (old tax regime) / Rs. 25,000 (concessional tax regime), as applicable.

At what annual pension income level does the new regime become more beneficial than the old regime for retirees?

Providing a specific income threshold at which one tax regime becomes universally preferable over the other may not be appropriate, as the choice between regimes depends on several factors, including the availability of deductions, exemptions, and individual financial planning preferences. 

While the old regime may be beneficial for individuals claiming substantial deductions and exemptions, it could also involve higher committed investments or expenditures, thereby affecting disposable income. Conversely, the new regime may offer higher disposable income due to lower tax outflows, particularly for individuals who prefer flexibility and lower mandatory investment commitments.

How should pensioners evaluate whether to switch regimes before filing ITR?

Pensioners should evaluate the choice between the old and new tax regimes based on their income profile, deductions, and exemptions, rather than assuming that one regime is automatically more beneficial. While the new tax regime offers lower slab rates and simplified taxation, the suitability of either regime depends largely on the deductions and exemptions available to the taxpayer.

Under the old tax regime, pensioners may continue to claim various deductions and exemptions, including those available under Section 80C for specified investments, Section 80D for health insurance premiums, home loan interest, and other eligible benefits. 

“Accordingly, pensioners with substantial deductible expenses may find the old tax regime to be more tax-efficient despite comparatively higher slab rates. In contrast, the new tax regime provides lower tax rates but restricts most exemptions and deductions. As a result, pensioners with limited deductions or simpler income structures may find the new regime more beneficial,” said CA (Dr.) Suresh Surana. 

The rebate provisions available under Section 87A also play an important role in determining the overall tax liability. Under the old tax regime, a resident individual is eligible to claim a rebate under Section 87A if taxable income does not exceed Rs. 5 lakh. The maximum rebate available is Rs. 12,500 or the amount of income tax payable, whichever is lower. Consequently, an individual with taxable income up to Rs. 5 lakh may effectively have no tax liability after claiming the rebate.

The new tax regime, however, provides a comparatively wider rebate benefit. For FY 2025–26 (AY 2026–27), a resident individual whose taxable income does not exceed Rs. 12 lakh may claim a rebate under Section 87A, subject to prescribed conditions. 

“Accordingly, eligible taxpayers may claim a rebate of up to Rs. 60,000, potentially resulting in nil tax liability within the prescribed threshold. However, under both tax regimes, a rebate under Section 87A cannot be claimed against income taxable at special rates, such as certain categories of capital gains, since such income does not qualify for rebate benefits,” Surana further commented. 

“As a practical measure, pensioners should compute their tax liability under both regimes before filing their Income Tax Return (ITR). They should also factor in the standard deduction available on pension income and assess whether medical expenses, insurance premiums, or investment-linked deductions materially reduce taxable income,” Surana recommended.  

Since pension income is treated as salary income for tax purposes, even relatively small variations in deductions may meaningfully impact the final tax outgo.

In which ITR forms can pensioners report pension income for AY 2026-27?

Disclaimer: This article is for informational purposes only and does not constitute professional tax advice. Tax laws and regimes are subject to frequent changes by the government. Readers should verify details with official Income Tax Department notifications or consult a Chartered Accountant before making any financial decisions.    

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