As of Monday, February 2, 2026, the Standard Deduction for Salaried Government Employees under the New Tax Regime remains at ₹75,000. Despite high expectations of a hike to ₹1 Lakh in the Budget 2026, the Finance Minister has maintained the status quo for the Financial Year 2026-27.

Income Tax Slabs 2026-27 (Govt Employees)

With the implementation of the New Income Tax Act 2025, the slab structures have been simplified. However, for Central Govt employees receiving arrears, the calculation can get complex due to Section 89 relief.

Rebate Limit: Under Section 87A, taxable income up to ₹7 Lakh is tax-free in the New Regime. This effectively means no tax for employees with a gross salary up to ₹7.75 Lakh (including Standard Deduction).

HRA vs Standard Deduction: Which is Better?

For employees living in government quarters, the License Fee is deducted, and HRA is not paid. In this case, the New Regime is usually beneficial.

However, for those paying high rent in X-Class cities, the Old Regime may still save more tax. You must check the HRA City Classification 2026 to calculate your exact exemption limit under Section 10(13A).

Arrears & Tax Relief (Section 89)

Employees who received DA Arrears or promotion arrears in FY 2025-26 must file Form 10E to claim relief under Section 89(1). Failing to file this form will result in a tax notice.

Additionally, if you have claimed Children Education Allowance (CEA), remember that the exemption is available at ₹100/month per child only in the Old Regime. The New Regime does not offer this exemption.