The government has notified the income tax rules, under which two new tax limits have been fixed on perquisites (non-salary benefits) given by the employer to the employees. These changes will especially affect those employees whose income is low or who get different types of facilities from the employer.
The amendment notified on 18th August 2025 vide the attached CBDT Notification No. 133/2025/F. No. 370142/27/2025-TPL revises the income thresholds prescribed under Section 17(2) of the Income-tax Act, 1961, which governs the taxation of perquisites. Earlier, the limits were Rs 50,000 in the case of specified employees and Rs 2,00,000 in respect of medical travel abroad. These have now been substantially increased to Rs 4 lakh and Rs 8 lakh respectively, through insertion of new Rules 3C and 3D into the Income-tax Rules, 1962.
Suresh Surana, a practicing chartered accountant, explains the changes in rules for perks taxation for employees in the story.
Specified employee – income threshold raised from Rs 50,000 to Rs 4 lakh
The term “specified employee” is defined under Rule 3 for the purposes of valuation of perquisites. It refers to:
· A director-employee; or
· An employee who has substantial interest (i.e., owns at least 20% voting power in the company); or
· Any other employee whose income under the head “Salaries” (excluding non-monetary perquisites) exceeds the prescribed limit.
This prescribed limit has now been enhanced to Rs 4 lakh (from Rs 50,000 earlier). The effect of this change is that employees with salary income up to Rs 4 lakh pa will not fall under the category of “specified employees” and therefore will not be subject to perquisite taxation on certain benefits (such as interest-free loans or free educational facilities for children). Only those with salary income above Rs 4 lakh will be treated as “specified employees” for these purposes.
Overseas medical treatment – Limit increased to Rs 8 lakh
In respect of expenditure on medical treatment outside India for an employee or a family member, Section 17(2) provides a conditional exemption. The earlier gross total income threshold of Rs 2 lakh for availing this benefit has now been raised to Rs. 8 lakh through Rule 3D.
This means that if the employee’s gross total income (before claiming this exemption) does not exceed Rs. 8 lakh pa, the value of such medical perquisite will not be taxed. If the gross total income exceeds Rs 8 lakh, the amount spent on overseas medical treatment will be treated as a taxable perquisite.
The upward revision of thresholds from outdated limits (Rs 50,000 and Rs 2 lakh) to Rs 4 lakh and Rs 8 lakh brings the law in line with current income levels and reduces the burden of perquisite taxation on lower and middle-income employees. This change is likely to provide significant relief to employees who previously would have been brought under the ambit of taxation merely due to outdated limits.
Why is this change important?
Till now there was a lot of ambiguity regarding the valuation of perks and tax exemption on them. After the new rules, a fixed limit has come to the fore — where Rs 4 lakh salary will become the basis for tax calculation and those earning less than Rs 8 lakh will get the benefit of exemption. This is expected to make the structure of perks taxation more transparent.