The government has introduced major changes to how employee perks will be taxed starting from the financial year 2025-26. Through a notification issued on 18 August 2025, the Central Board of Direct Taxes (CBDT) has revised the income thresholds that decide whether certain perquisites provided by employers will be taxable.
These changes have been made by inserting new Rules 3C and 3D into the Income-tax Rules, 1962. They substantially increase the limits that had been unchanged for decades, providing much-needed relief for employees in the lower and middle-income categories.
Specified Employee Threshold Raised to Rs 4 Lakh
Under Section 17(2) of the Income-tax Act, certain perquisites such as interest-free loans or free educational facilities for children were taxable for “specified employees.” Earlier, this classification applied to employees earning more than Rs 50,000 under the head “salaries.”
Now, with the new amendment, this threshold has been raised to Rs 4 lakh. This means employees with salary income up to Rs 4 lakh annually will no longer be treated as specified employees for the purpose of taxing such benefits. Only those earning above Rs 4 lakh will come under the ambit of perquisite taxation in this category.
Overseas Medical Treatment Exemption Up to Rs 8 Lakh
Another major change has been introduced for employees availing medical treatment abroad. Previously, employees with income above Rs 2 lakh had to pay tax on the value of such perquisites. The new rules increase this threshold to Rs 8 lakh.
If the gross total income of the employee before claiming the exemption does not exceed Rs 8 lakh, then the value of medical expenses incurred for overseas treatment of the employee or their family will not be taxed. This change significantly eases the financial strain on families requiring expensive treatment abroad.
Why This Change Matters
For years, the outdated limits of Rs 50,000 and Rs 2 lakh meant that even modest earners could be taxed heavily on perks that were essential or non-monetary in nature. By increasing these thresholds, the government has aligned the law with current income realities.
The revision makes the structure of perk taxation clearer and fairer. Employees earning below Rs 4 lakh will be spared unnecessary tax scrutiny on small perks, while those earning below Rs 8 lakh will receive much-needed relief on medical expenses abroad. Overall, the reform improves transparency and reduces the compliance burden on salaried individuals.
What Employees Should Keep in Mind
While this reform provides relief, employees must still maintain proper documentation of perks received from their employer, especially in cases of loans or medical treatment claims. Employers too must ensure accurate reporting of these benefits under the new rules.
For taxpayers, the message is encouraging. The government’s decision signals a more equitable approach to perk taxation, ensuring benefits are fairly distributed and not unnecessarily taxed at lower income levels.
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