The Central Board of Direct Taxes (CBDT) has brought welcome relief for salaried employees by revising the income limits for taxation of certain perquisites (benefits provided by employers, like free housing, cars, education, or medical facilities).
Until now, the thresholds were outdated and caused even modest perks to be taxed for low-earning employees. With Notification No. 133/2025 (dated 18 August 2025), the government has raised the salary limit to ₹4 lakh and the gross total income limit to ₹8 lakh for applying specific perquisite taxation rules.
This change is aimed at easing the tax burden on middle-class employees and bringing fairness to the taxation of employer-provided benefits. To help you understand how these new rules apply in real life, here’s a simple Q&A guide.
Overview of the Amendment
- Notification No.: 133/2025 (F. No. 370142/27/2025-TPL) under G.S.R. 555(E)
- Date Issued: 18 August 2025
- Effective Date: From the date of publication in the Official Gazette
- Authority: Exercised under clause (2) of Section 17 read with Section 295 of the Income-tax Act, 1961
Key Insertions: Rules 3C and 3D
Following Rule 3B, two new rules have been added to the Income-tax Rules, 1962:
1. Rule 3C – Salary Income Threshold
- Specifies that the “prescribed income under the head ‘Salaries’” for the purpose of item (c) of sub-clause (iii) of clause (2) of Section 17 shall be ₹4,00,000.
- Practically, this means only employees whose salary income (excluding perquisites) exceeds ₹4 lakh will be considered “specified employees” for perquisite valuation under Section 17(2)(iii)(c)
2. Rule 3D – Gross Total Income Threshold
- Specifies that the “prescribed gross total income” for the purpose of clause (vi) of the proviso to Section 17(2) shall be ₹8,00,000.
- This means only employees whose gross total income exceeds ₹8 lakh will be subjected to tax on certain perquisites (e.g., overseas medical treatment benefits) under that clause.
Context & Rationale
- Threshold Hike: The salary threshold has seen a steep increase—from ₹50,000 (set in 2001) to ₹4 lakh. Similarly, gross total income threshold for perquisite exemptions has risen significantly.
- Why It Matters: These updates primarily benefit middle-income salaried employees, easing the tax treatment for common non-monetary perquisites like educational facilities, housing, and medical amenities.
- Examples of Perquisites Affected:
- Under Rule 3C: housing, cars, staff services, utilities—these perquisites are now exempt from taxation unless the employee’s salary income crosses ₹4 lakh.
- Under Rule 3D: travel and stay costs related to overseas medical treatment enjoy exemption only if gross total income ≤ ₹8 lakh.
- Clarification: Being below the threshold no longer requires employees to pay tax on such benefits, except for those who are directors or have substantial interest in the company—these remain taxable regardless of income.
Summary Table for Your Blog
| Rule No. | Threshold Type | Threshold Amount | Tax Treatment |
|---|---|---|---|
| 3C | Salary Income | ₹4,00,000 | Perquisites taxed under Section 17(2)(iii)(c) only if salary income > ₹4L |
| 3D | Gross Total Income | ₹8,00,000 | Exemptions under Section 17(2) proviso (vi) available only if GTI ≤ ₹8L |
What This Means for Taxpayers
- Employees earning up to ₹4 lakh (salary):
— Enjoy tax relief on several employer-provided non-monetary perks—they’re not treated as perquisites. - Employees with gross total income up to ₹8 lakh:
— Exempt from taxation on benefits like overseas medical and travel costs provided by employer, subject to RBI approvals and other conditions. - Employees above these thresholds:
— Perquisites as specified will be taxable, as defined under Section 17 provisions.
Final Thoughts
This Twenty Second Amendment through Notification 133/2025 marks a noteworthy shift in the taxation of employee perquisites, aligning the rules more closely with modern income levels and cost-of-living patterns. With Rule 3C and Rule 3D, the CBDT has provided clearer, fairer thresholds—significantly easing the compliance burden for a wide segment of salaried individuals.
These updates strike a balance: granting relief to lower-income employees while preserving the tax base among higher-income earners. A smart move, indeed!
Explained in Q&A
❓Q1. What has the government changed recently?
👉 The CBDT has issued a notification (No. 133/2025, dated 18 Aug 2025) amending the Income-tax Rules, 1962.
It introduces two new thresholds for taxing perquisites (benefits given by employers).
❓Q2. What is the new salary income limit for taxing perquisites?
👉 If your salary income is up to ₹4 lakh per year, certain benefits (like free education, housing, car facility, etc.) will not be taxed as perquisites.
Only when salary income exceeds ₹4 lakh, these perks will be considered taxable.
❓Q3. What is the gross total income limit?
👉 If your gross total income (GTI) is up to ₹8 lakh, you can enjoy exemption on some specific perquisites (e.g., overseas medical treatment, travel expenses paid by employer).
If your GTI is above ₹8 lakh, such benefits may become taxable.
❓Q4. What do these rules mean in simple words?
👉 In short:
- Employees with modest salaries (≤ ₹4 lakh) don’t need to worry about taxation of small perks from their employer.
- Employees with GTI ≤ ₹8 lakh get extra relief on certain perquisites.
❓Q5. Which perks are affected by the ₹4 lakh limit?
👉 Common non-monetary facilities such as:
- Rent-free/ concessional accommodation
- Employer-provided car or driver
- Utilities (gas, water, electricity)
- Free or concessional education for children
➡️ These are taxed only if salary income > ₹4 lakh.
❓Q6. Which perks are linked to the ₹8 lakh gross total income limit?
👉 Mainly overseas medical treatment and related travel/stay costs (when permitted under RBI rules).
➡️ Exempt only if GTI ≤ ₹8 lakh.
❓Q7. Who will always be taxed, regardless of these limits?
👉 Directors and employees having a substantial interest in the company are always treated as “specified employees.” Their perquisites are taxable even if income is below ₹4 lakh.
❓Q8. Why is this change important?
👉 The old salary threshold was just ₹50,000 (set in 2001) – totally outdated. By raising it to ₹4 lakh and the GTI limit to ₹8 lakh, the government:
- Gives relief to middle-income earners
- Aligns rules with today’s income levels and cost of living
- Reduces unnecessary tax burden on small perks
❓Q9. From when do these new rules apply?
👉 They apply immediately – from the date of publication in the Official Gazette (18 August 2025).
✅ Quick Summary
- Salary ≤ ₹4 lakh → Most perks not taxed
- Salary > ₹4 lakh → Certain perks taxable
- GTI ≤ ₹8 lakh → Overseas medical perks exempt
- Directors/major shareholders → Always taxable