Changes to Income Tax Rules on Perquisites: A Relief for Employees
The government has recently announced significant revisions to the income tax rules, specifically regarding the taxation of perquisites (non-salary benefits) provided by employers to their employees. These modifications are poised to particularly benefit employees with lower incomes or those receiving various facilities from their employers.
On 18th August 2025, the Central Board of Direct Taxes (CBDT) issued Notification No. 133/2025/F. No. 370142/27/2025-TPL, which amends the income thresholds established under Section 17(2) of the Income-tax Act, 1961, governing the taxation of perquisites. The previous limits were Rs 50,000 for specified employees and Rs 2,00,000 for medical travel abroad. These thresholds have now been significantly increased to Rs 4 lakh and Rs 8 lakh respectively, through the introduction of new Rules 3C and 3D into the Income-tax Rules, 1962.
Understanding the Changes
Suresh Surana, a practicing chartered accountant, sheds light on the alterations in rules concerning perk taxation for employees.
Specified Employee – Income Threshold Raised
The term “specified employee” is defined under Rule 3 for the purpose of perquisite valuation. It includes:
- A director-employee;
- An employee who has substantial interest (i.e., owns at least 20% voting power in the company);
- Any other employee whose income under the head “Salaries” (excluding non-monetary perquisites) surpasses the prescribed limit.
This limit has now been raised from Rs 50,000 to Rs 4 lakh. Consequently, employees earning up to Rs 4 lakh annually will not be classified as “specified employees” and will therefore not be subject to perquisite taxation on certain benefits (such as interest-free loans or free educational facilities for children). Only those with a salary income exceeding Rs 4 lakh will fall under the “specified employees” category for these purposes.
Overseas Medical Treatment – Limit Increased to Rs 8 Lakh
In terms of expenditures relating to medical treatment abroad for an employee or family member, Section 17(2) provides a conditional exemption. The previous threshold of Rs 2 lakh for this benefit has now been elevated to Rs 8 lakh under Rule 3D.
This means that if an employee’s gross total income (before claiming this exemption) is below Rs 8 lakh annually, the value of such medical perquisite will not be taxed. Conversely, if the gross total income exceeds Rs 8 lakh, the expenses on overseas medical treatment will be considered a taxable perquisite.
Implications of the Changes
The adjustment of the limits from the outdated figures of Rs 50,000 and Rs 2 lakh to Rs 4 lakh and Rs 8 lakh is a progressive step that aligns the law with current income levels. This revision aims to lessen the burden of perquisite taxation on lower to middle-income employees and is expected to provide significant relief to those who previously faced taxation due to outdated limits.
Importance of the Change
Previously, the valuation of perks and their corresponding tax exemptions were shrouded in ambiguity. With the introduction of the new rules, a clear benchmark has emerged — where a salary of Rs 4 lakh will serve as the basis for tax calculations, and individuals earning less than Rs 8 lakh will benefit from exemptions. This transition is anticipated to enhance the transparency of the perks taxation structure.
In conclusion, these amendments to the income tax rules present a much-needed relief to many employees, fostering a fairer taxation system in accordance with today’s financial landscape.
