Standard Deduction for NRIs: Salary and Pension Income Under Section 16(ia)

An NRI who has been drawing a pension from a former Indian employer for five years walks into a CA's office with a sheaf of TDS certificates. The CA asks how much was deducted. The NRI says Rs 3,60,000. The CA pulls up the ITR and notices the pension was entered gross, the standard deduction was never claimed, and Rs 75,000 worth of slab tax that should not have been paid has been quietly bleeding out every year. Four years of over-payment, four years of refunds that could have been avoided. The standard deduction under Section 16(ia) is not a resident perk. It is a structural deduction from the head Salaries, available to any taxpayer whose income falls under that head, NRI or otherwise. It is also one of the few deductions that survives into the new tax regime. Missing it is straightforward to fix but expensive to miss.

This guide covers who gets it, how much, how to claim it in both regimes, why the salary-versus-professional-income classification matters enormously, and how TDS on an Indian pension interacts with the deduction in practice.

The 30-second answer: The standard deduction of Rs 75,000 (from FY 2024-25 under the new regime; Rs 50,000 under the old) is available to NRIs under Section 16(ia) on any income taxed under the head Salaries, including pensions from a former Indian employer. It is not restricted to residents. It is one of the few deductions kept in the new tax regime. It applies to salary and pension only, not to professional fees, rental income or interest. An NRI on a Rs 12,00,000 Indian pension pays slab tax on Rs 11,25,000, not the gross amount. TDS payers sometimes miss it and deduct at full gross; the remedy is to file ITR-2, claim the deduction, and recover the over-withheld tax. The Section 87A rebate is residents only, so NRIs still pay slab tax from the first rupee above the basic exemption. New regime is the default from FY 2023-24 unless you opt out by filing your return with the old-regime election.

What Section 16(ia) actually says

Section 16 lists the deductions allowed from income under the head Salaries before arriving at the taxable salary figure. It has three clauses. Section 16(i) is for entertainment allowance (government employees only). Section 16(ii) is for the professional tax paid to state governments. Section 16(ia) is the standard deduction, and it reads simply as a flat amount deductible from income under the head Salaries.

There is no residency qualifier in the section. It does not say "resident assessee" or "ordinarily resident." The deduction follows the head, not the person. Any income taxed under Salaries, wherever the taxpayer lives, gets Section 16(ia). An NRI drawing an Indian pension from a former employer in Mumbai is as entitled to it as a salaried employee sitting in that office today.

The amount has moved twice in recent history. Before FY 2018-19 there was no standard deduction (it had been abolished in an earlier Finance Act and the two-decade gap in its absence was the source of much confusion). Budget 2018 reintroduced it at Rs 40,000 for FY 2018-19, raised to Rs 50,000 from FY 2019-20. That Rs 50,000 figure applied in both regimes until Budget 2024 raised it to Rs 75,000 under the new regime from FY 2024-25. Under the old regime it remains Rs 50,000. So for AY 2026-27 (income earned in FY 2025-26): new regime gets Rs 75,000, old regime gets Rs 50,000.

Who gets it: the scope of the head Salaries

The standard deduction follows the head, so the first question is always whether the income in question is correctly classified as Salaries.

Salary from an Indian employer is the easy case. An NRI employed by an Indian company, even if working partly or entirely from abroad, has their India-source salary component charged under Salaries. The standard deduction applies. For income earned partly in India and partly abroad, only the India-source portion is taxable in India for an NRI, and it is that India-source portion to which the standard deduction applies.

Pension from a former Indian employer is the second and often more practically important case for NRIs. A pension paid by a former employer, whether a private company, a public sector undertaking, or the central or state government, is taxed under the head Salaries. It is treated as deferred salary from the employment relationship. The standard deduction of Rs 75,000 (new regime) or Rs 50,000 (old regime) applies to pension income in exactly the same way as to active salary. An NRI drawing Rs 12,00,000 a year from a former employer's pension fund claims Rs 75,000 off the top and pays slab tax only on Rs 11,25,000.

Government pension (Central Government, state governments, defence, judiciary) is also taxed under Salaries and gets the deduction. The government-service distinction matters enormously for DTAA analysis and for commutation treatment under Section 10(10A), but it does not affect the availability of the standard deduction.

Family pension is the important exception. A family pension paid to the widow or legal heir of a deceased employee is not taxed under Salaries; it is taxed under Income from Other Sources. Section 16(ia) does not apply. Family pension instead gets its own deduction: one-third of the pension received or Rs 25,000, whichever is lower, under the proviso to Section 57. A non-resident receiving a family pension from an Indian employer gets that Rs 25,000 family-pension deduction, not the Rs 75,000 standard deduction.

The new tax regime: one of the few deductions that survived

The new tax regime introduced in FY 2020-21 (and made the default from FY 2023-24 unless the assessee opts out) strips away most deductions and exemptions in exchange for lower slab rates. It eliminates 80C (PPF, ELSS, insurance premium, tuition fees), 80D (health insurance premium), HRA, LTA, and most of what salaried taxpayers typically claimed. For NRIs in particular this is often not devastating because many of those deductions were already limited or unavailable: 80C is available to NRIs but the qualifying instruments are narrow, and 80D is available to NRIs but the premium must be paid in India for it to qualify.

The standard deduction is one of the handful of deductions explicitly retained in the new regime. When the new regime was introduced in FY 2020-21, the standard deduction was initially not available. Budget 2023 added the standard deduction to the new regime at Rs 50,000, and Budget 2024 raised it to Rs 75,000 from FY 2024-25. This makes it more valuable in the new regime than in the old, because in the new regime it is often the primary or only meaningful reduction available to an NRI pensioner.

The practical comparison for an NRI with only an Indian pension and no other India-source income:

Old regime: Rs 50,000 standard deduction, plus potential 80C (limited instruments), plus 80D if premiums paid in India.

New regime: Rs 75,000 standard deduction. That is it, plus the lower slab rates that the new regime offers.

For many NRIs whose only India income is a pension and who have no qualifying 80C investments or Indian health insurance, the new regime often produces a lower liability because the tax rate advantage offsets the loss of whatever small deductions they could have claimed in the old regime. The worked example below shows this calculation in full.

Other deductions NRIs can and cannot use

Since the standard deduction often sits alongside questions about other deductions, a brief map is useful before the worked example.

Section 80C (Rs 1,50,000 limit): Available to NRIs, but qualifying instruments are far narrower than for residents. NRIs cannot invest in PPF, NSC, or Senior Citizens Savings Scheme. They can claim 80C for life insurance premiums, ELSS mutual funds, principal repayment on a home loan for Indian property, and tuition fees for children's education. Under the new regime, 80C is not available at all.

Section 80D (health insurance): Available to NRIs, but the premium must generally be paid in India, typically from an NRO account, and the policy must be for the taxpayer, spouse, children, or parents. Under the new regime, 80D is not available.

Section 80TTA / 80TTB (savings interest): Section 80TTA (Rs 10,000 deduction on savings interest) is available to residents and NRIs below 60. Section 80TTB (Rs 50,000 deduction on interest for senior citizens) is for resident senior citizens only. NRIs over 60 do not get 80TTB. Both 80TTA and 80TTB are not available under the new regime.

Section 24(b) (home loan interest): Available to NRIs with Indian property and a home loan from an Indian bank or housing finance company, deductible against rental income or under house property. Not relevant to Salaries or the standard deduction, but often asked alongside it.

Section 87A rebate: This is the critical one NRIs lose. Resident individuals with total income up to Rs 7,00,000 (new regime) or Rs 5,00,000 (old regime) pay zero tax after the 87A rebate. The rebate is available to resident individuals only. A non-resident, even with total India income below the threshold, cannot use it. So an NRI with a Rs 5,00,000 Indian pension, after the Rs 75,000 standard deduction, has Rs 4,25,000 taxable income and pays slab tax on it. A resident with the same income pays zero after the rebate. That differential is baked into the law and there is no workaround.

What does not qualify: professional income, rental income, interest

The standard deduction applies only to the head Salaries. This creates a specific issue for NRIs who have Indian salary or pension income alongside other Indian income streams.

Professional fees or consulting income from an Indian client is not Salaries. It is either Profits and Gains from Business or Profession (if the NRI is in business or profession) or, if the income falls under Section 115A for specified services, it may be taxed at a flat rate under that provision. The standard deduction does not apply to it. An NRI who retired from an Indian employer, draws a pension, and has also taken on a consulting retainer with a former employer or an Indian firm has two distinct income streams: the pension is Salaries (standard deduction applies), and the consulting fee is profession income (standard deduction does not apply, and different TDS rules govern the payer's obligations).

Rental income from Indian property is taxed under the head House Property, not Salaries. The deductions available there are the municipal taxes paid and a flat 30% standard deduction under Section 24(a) of the income from property, but that is a separate provision for a separate head and has nothing to do with Section 16(ia). The two standard deductions are not related.

Interest income (NRO savings, NRO fixed deposits, bonds) is taxed under Income from Other Sources. No standard deduction applies.

The multi-source NRI common case is worth spelling out clearly: an NRI with Rs 8,00,000 pension (Salaries), Rs 4,00,000 consulting fees (Business/Profession), and Rs 1,50,000 NRO interest (Other Sources) gets the Rs 75,000 standard deduction only against the Rs 8,00,000 pension. Taxable salary after deduction is Rs 7,25,000. The consulting fees and interest are added to that in their respective heads, and no standard deduction offsets them.

Salary versus professional income: the classification that decides TDS and deductibility

For NRIs, the salary-versus-professional distinction is not just about the standard deduction; it determines which TDS section the Indian payer must operate and therefore how much is withheld.

Section 192 governs TDS on salary. When a payer treats a payment as salary (including pension), they estimate the employee's likely tax liability for the year, build in the standard deduction, and deduct accordingly. The rate is flexible, follows the slab, and the payer is supposed to account for the Rs 75,000 standard deduction before computing the TDS obligation.

Section 195 governs TDS on payments to non-residents for most other income types, including professional fees. Under Section 195 the default rate is the applicable tax rate on the income, without any flexible slab estimation, and there is no statutory mechanism for the payer to build in deductions from a different head.

Section 194J governs TDS on fees for professional or technical services paid to residents and some non-residents, at 10% (2% in some cases from FY 2020-21). Where Section 194J applies to a non-resident, Section 195 may overlap, and the payer's obligation depends on which provision the income falls under.

The consequence for the NRI: if an Indian company pays an NRI a consulting retainer but structures it as a "salary" under a continuing employment arrangement rather than as professional fees, it can use Section 192 machinery, apply the standard deduction, and deduct at a more accurate rate. If it pays professional fees, Section 195 applies and the standard deduction is irrelevant to that stream. Most Indian companies with non-resident consultants default to Section 195 on professional fees because they are not operating as employers; the NRI then files ITR-2 or ITR-3, declares the income under the correct head, claims allowable deductions against it (not Section 16(ia), but actual expenses if they are in business/profession), and recovers any excess TDS deducted at the high Section 195 rate.

The practical upshot: if you have any choice in how a continuing engagement with an Indian entity is structured, the salary-versus-consultant question is worth a deliberate decision, not just a default contract template. The standard deduction alone makes Rs 75,000 of pension income effectively tax-free at the 30% slab, a saving of Rs 22,500 a year, and that is before the other implications for TDS, regime choice, and the head under which income is reported.

Worked example: NRI pensioner at Rs 12,00,000 under both regimes

Rajan is an NRI living in Singapore. He retired from a private-sector Indian company, and his pension is Rs 12,00,000 a year, paid into his NRO account by the company's pension fund. He has no other India-source income.

Under the new tax regime (default from FY 2023-24):

Item	Amount
Gross pension (income under Salaries)	Rs 12,00,000
Less: Standard deduction u/s 16(ia)	Rs 75,000
Net taxable salary	Rs 11,25,000

New regime slabs for FY 2025-26:

• Up to Rs 3,00,000: Nil
• Rs 3,00,001 to Rs 7,00,000: 5%
• Rs 7,00,001 to Rs 10,00,000: 10%
• Rs 10,00,001 to Rs 12,00,000: 15%
• Rs 12,00,001 to Rs 15,00,000: 20%

Tax on Rs 11,25,000:

• Rs 3,00,000 at nil: Rs 0
• Rs 4,00,000 at 5% (Rs 3,00,001 to Rs 7,00,000): Rs 20,000
• Rs 3,00,000 at 10% (Rs 7,00,001 to Rs 10,00,000): Rs 30,000
• Rs 1,25,000 at 15% (Rs 10,00,001 to Rs 11,25,000): Rs 18,750

Total income tax: Rs 68,750

Add 4% health and education cess: Rs 2,750

Total tax payable: Rs 71,500

Note: the Section 87A rebate does not apply because Rajan is a non-resident.

Under the old tax regime:

Item	Amount
Gross pension	Rs 12,00,000
Less: Standard deduction u/s 16(ia)	Rs 50,000
Net taxable salary	Rs 11,50,000

Old regime slabs for FY 2025-26:

• Up to Rs 2,50,000: Nil
• Rs 2,50,001 to Rs 5,00,000: 5%
• Rs 5,00,001 to Rs 10,00,000: 20%
• Above Rs 10,00,000: 30%

Tax on Rs 11,50,000:

• Rs 2,50,000 at nil: Rs 0
• Rs 2,50,000 at 5%: Rs 12,500
• Rs 5,00,000 at 20%: Rs 1,00,000
• Rs 1,50,000 at 30%: Rs 45,000

Total income tax: Rs 1,57,500

Add 4% cess: Rs 6,300

Total tax payable: Rs 1,63,800

Rajan saves Rs 92,300 by filing under the new regime. The wider standard deduction (Rs 75,000 versus Rs 50,000) contributes Rs 7,500 of that saving at the 30% slab that would have applied to that Rs 25,000 in the old regime, and the rest comes from the lower slab rates in the new regime.

The new regime advantage is stark at this income level. For most NRIs with only an Indian pension below Rs 15,00,000 and no other large India-source income, the new regime will outperform unless they have significant qualifying 80C investments, 80D premiums, and home loan interest on Indian property, all filed under the old regime.

What the standard deduction saves at 30% slab: On the Rs 75,000 deduction under the new regime, the tax saving is Rs 75,000 times 30% equals Rs 22,500, plus cess, for a total of Rs 23,400 per year. Over a decade of pension drawdown that is Rs 2,34,000 in tax that is legally yours to keep and often silently surrendered because the deduction was not claimed.

How TDS on an Indian pension interacts with the standard deduction

The pension payer (former employer, public sector undertaking, bank disbursing a government pension) is the entity responsible for deducting TDS on the pension before crediting it to your account. The statutory mechanism is Section 192, which governs TDS on salary including pension. Under Section 192 the payer is required to estimate the pensioner's annual tax liability and deduct accordingly, which should in principle include giving effect to the standard deduction.

In practice, three failure modes are common for NRI pensioners.

Failure mode one: payer uses Section 195 instead of Section 192. When a payer treats the pensioner as a non-resident and applies Section 195 rather than Section 192, the standard deduction is not built into the TDS calculation. Section 195 TDS is computed on the gross income, at a flat rate, without the slab-rate estimation that Section 192 involves. The result is systematic over-deduction. The remedy is to file ITR-2, claim the standard deduction, compute actual liability, and recover the excess TDS as a refund. This can be a significant amount year after year; applying for a lower TDS certificate under Form 13 is worth considering if the pension is large and the over-deduction is recurring.

Failure mode two: payer gives the Section 192 treatment but forgets the standard deduction. Even payers operating Section 192 sometimes compute TDS on the gross pension without first deducting the Rs 75,000, either because their payroll software is not updated for the FY 2024-25 increase or because they treat a non-resident pensioner differently from a regular employee. Again the remedy is on the ITR. Do not assume that TDS was correctly computed; verify by checking whether the Form 16 or TDS certificate reflects the standard deduction, and correct on the return if it does not.

Failure mode three: payer deducts TDS on the full pension and the pensioner files showing full pension as taxable. This is the compounded error: the payer over-deducts and the pensioner, receiving the Form 16 or TDS certificate, assumes the payer was right and files the return replicating the payer's treatment. Four or five years pass before a CA looks at the file and notices that the standard deduction has never appeared in the ITR. Five years of refunds must now be pursued: three years under the normal filing window and potentially more under the updated-return provision. The clean practice is to claim the Rs 75,000 deduction on every ITR, every year, regardless of what the payer's TDS certificate says.

Checking Form 26AS and the Annual Information Statement (AIS): Before filing, pull the AIS from the income tax portal. It will show the gross pension income reported by the payer and the TDS deposited against your PAN. The AIS figure is what the income tax department has on file. If it differs from what your pension statement or bank credit shows, reconcile before filing. The ITR should show gross income matching the AIS (or explain the difference), then the Section 16(ia) deduction reducing it to taxable income.

Old versus new tax regime: the NRI's specific considerations

Every salaried taxpayer in India now faces the regime choice (or the default), but NRIs face it differently from residents because several of the old-regime deductions that residents rely on are either unavailable or impractical for NRIs.

Section 80C: Legally available to NRIs, but most 80C instruments are off-limits. NRIs cannot open or contribute to PPF. They cannot invest in NSC or Senior Citizens Savings Scheme. They can use ELSS (equity-linked savings schemes in mutual funds), term-insurance premiums, home loan principal repayment on Indian property, and tuition fees for children's education. An NRI who has none of these available gets zero 80C benefit, which removes one of the two biggest arguments for the old regime.

Section 80D: Available to NRIs, but the premium must be paid from Indian accounts (typically NRO) for an insurance policy. Many NRIs hold health insurance in their country of residence and have no Indian health insurance, so 80D is not claimable in practice.

HRA and LTA: NRIs in employment abroad are not typically receiving HRA or LTA from their Indian employer; if they are receiving a salary from an Indian entity for services rendered partly in India, the HRA and LTA component depends on the employment structure. For a retired NRI drawing only a pension, HRA and LTA are irrelevant.

Interest on home loan (Section 24(b)): Deductible against house property income, not against salary. It is a deduction from a different head entirely. Including it in the old-regime versus new-regime comparison requires knowing whether the NRI has Indian property income too.

For the typical NRI pensioner who has a pension, perhaps some NRO interest, and no large qualifying 80C investments or Indian health insurance, the new regime almost always wins at pension levels above Rs 7,50,000 because the lower slab rates dominate. The worked example confirms this: at Rs 12,00,000 the new-regime saving is Rs 92,300.

The new regime is the default from FY 2023-24. If you do nothing, the new regime applies. To use the old regime you must explicitly opt out by filing the return with the old-regime election. For an individual without business income (which includes a pensioner), the election can be made year by year; there is no lock-in obligation. So an NRI can try both calculations each year and pick the one that produces a lower liability, then file accordingly before the July 31 deadline for AY 2026-27.

For the interaction of regime choice with the filing itself, see the NRI ITR filing guide for AY 2026-27.

What the deduction does not cover: a clear boundary

It is worth being explicit about what the Rs 75,000 does not touch, because the temptation to stretch it is real.

The deduction is a flat Rs 75,000 from the Salaries head before the head total is computed. It does not:

• Reduce professional income or consulting fees from Indian clients
• Reduce NRO interest or savings account interest
• Reduce rental income from Indian property
• Apply twice if you have both an active Indian salary and a pension from a different employer in the same year (it is one deduction per taxpayer per year, not per employer)
• Apply under a proportional or time-based basis (it is the full Rs 75,000 regardless of whether the pension ran for three months or twelve)
• Get enhanced for NRIs on higher pensions (it is a flat deduction, not a percentage)

On the last point about multiple employers or income sources: if an NRI has a salary from one Indian employer and a pension from a former employer in the same year, both fall under the head Salaries and the single Rs 75,000 standard deduction covers the combined Salaries figure, not Rs 75,000 per source. The two amounts are added together under the head, and then Rs 75,000 is deducted once.

Advance tax and self-assessment tax for the NRI pensioner

If TDS on the pension does not fully cover the tax liability, the NRI may need to pay advance tax during the year. Advance tax obligation arises if the expected net tax liability for the year (after TDS) exceeds Rs 10,000. The due dates are 15 June, 15 September, 15 December, and 15 March.

In practice, many NRI pensioners whose only India income is a pension will find the TDS covers most or all of the liability, because the payer operates Section 192 or Section 195 and deducts at a rate that tends to over-rather than under-cover. Under-coverage most commonly occurs when: the NRI has additional India income (consulting fees, rental income, NRO interest) beyond the pension; the payer uses a conservatively low TDS rate because of a lower TDS certificate from a prior year; or the regime change (moving from old to new or vice versa) means the rate applied by the payer and the actual rate diverge.

Any shortfall after TDS is paid as self-assessment tax before filing, using Challan 280 in the income tax portal. The mechanics are in NRI self-assessment tax and Challan 280 and key payment dates are in the NRI tax calendar for 2026.

The closing read

The standard deduction under Section 16(ia) is a structural deduction from the head Salaries, not a resident-only benefit. If your income is charged under that head, you get the deduction. For FY 2024-25 onwards that is Rs 75,000 under the new regime and Rs 50,000 under the old, applied to the gross salary or pension before slab tax.

Three things are worth fixing in your practice if you have an Indian pension.

First, claim it on every return. Not just when you remember, not just when the payer's Form 16 reflects it. Claim it every year as a matter of course, because the payer's TDS computation is frequently wrong for non-residents and the ITR is where the correct position is established.

Second, run the regime comparison every year. For most NRI pensioners with no qualifying 80C investments and no Indian health insurance, the new regime wins at pension levels above Rs 7 to Rs 8 lakh. The arithmetic is quick and the saving can be substantial.

Third, separate your income heads clearly before calculating. The standard deduction belongs to Salaries. If you also have consulting fees or NRO interest, those go into other heads and get other treatments. Mixing them produces an inflated deduction claim that the department can disallow and a potentially inaccurate TDS reconciliation that makes refunds harder to recover.

The pension deduction is not exotic planning. It is a basic provision that every NRI with Indian salary or pension income is entitled to and many do not claim. Claiming it correctly is the entire game.

Related guides

• NRI ITR filing for AY 2026-27
• NRI residency and RNOR rules
• TDS for NRIs and refunds
• Lower TDS certificate: Form 13
• NRI self-assessment tax and Challan 280
• Advance tax for NRIs
• NRI tax calendar 2026: key dates
• Tax on NRO interest
• Tax on Indian rental income for NRIs
• DTAA relief for NRIs
• DTAA mechanics: TRC and Form 10F
• NRI belated, revised and updated return (ITR-U)
• NRI faceless assessment and scrutiny process
• Responding to NRI tax notices
• NRE, NRO and FCNR accounts
• NRI EPF and PF strategy

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This guide is general information, not tax advice. The standard deduction amount, its availability in each tax regime, and the interaction with TDS depend on the exact income structure, residential status, and the year of assessment. Slab rates and regime rules are as applicable for AY 2026-27 (FY 2025-26 income, governed by the Income Tax Act 1961); the Income Tax Act 2025 renumbers several provisions from 1 April 2026. The Section 87A rebate position for non-residents is based on the current statutory language; consult a qualified chartered accountant or cross-border tax adviser before filing, particularly where the salary-versus-professional-income classification or the regime choice is in doubt.