Good News! Tax-Free Perquisite Limits for Salaried Employees Substantially Increased:

Good News! Tax-Free Perquisite Limits for Salaried Employees Substantially Increased The Central Board of Direct Taxes (CBDT) recently issued an official notification dated August 18, 2025, informing of an increase in income threshold limits for calculating tax-free perquisites (perks) in salary income. These new revised limits were updated in the Finance Act 2025 through this notification. These limits were set to come into effect from April 01, 2025, for the assessment year 2026-27 (financial year 2025-26). Earlier, the salary income limits for tax-free perquisites for specified employees and overseas medical treatment were Rs 50,000 and Rs 2 lakh, respectively. However, now these limits have been increased to Rs 4 lakh and Rs 8 lakh, respectively.

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Not all employees are taxed on these perquisites in the same way. The law defines “specified employees” who are more likely to pay tax on these benefits. Specified employees include company directors, employees who own at least 20% of the company, or employees whose salary exceeds a certain amount. The government has increased this limit to benefit a large number of salaried employees. Earlier, even salaried employees with lower income were required to pay tax on benefits they got from their employers; now, with the increase in the tax-free perquisites limit, these employees have been exempted from paying tax on such perks. At the same time, limits for overseas medical treatment benefits have also been increased to align with today’s economic conditions.

What is Perquisite Taxation?

Perquisite taxation means that if your employer gives you certain benefits or amenities, such as a car, free education for your children, or free medical treatment, these benefits can be considered as part of your income, and you may have to pay tax on them. These benefits are called “perquisites.”

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What Has Changed?

Earlier, if your salary income was above Rs 50,000, you were considered a specified employee, and the perquisites you received were taxable. This limit of Rs 50,000 was set long ago (in 2001) and has not changed since then, even though inflation and salaries have increased a lot. Now, for the Financial Year 2025-26 (Assessment Year 2026-27), this limit has been increased from Rs 50,000 to Rs 4 lakh. This means that if your salary is Rs 4 lakh or less, you will not be considered a specified employee and won’t have to pay tax on these perquisites. Only if your salary is above Rs 4 lakh will you have to pay tax on such benefits. For instance, if you earn Rs 3.99 lakh and get perks like an interest-free loan or free education for your children from your employer, you will not have to pay tax on these benefits anymore.

What About Overseas Medical Treatment?

There is a separate rule for medical treatment abroad paid by your employer. Earlier, if your total income was more than Rs 2 lakh, the travel and stay expenses for overseas medical treatment would be taxable as a perquisite. This limit of Rs 2 lakh was set in 1993; now the limit has been increased to Rs 8 lakh. Now, if your total income is Rs 8 lakh or below (before claiming tax exemption), then travel and stay expenses paid by your employer for medical treatment abroad will not be considered taxable. However, if your total income exceeds the limit of Rs 8 lakh, then these expenses will be considered taxable perquisites.

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Conditions for Exemption on Medical Treatment Abroad

There are conditions under which one can claim tax exemption on perks; these conditions are as follows:

• The medical treatment abroad must be for you or your family member.
• Travel and stay expenses cover only you and one attendant who handles the patient.
• The expenses should be within the foreign exchange limit of the Central Bank of India, i.e., the RBI: LRS limit of USD 250,000 per annum.

How Were These Changes Made?

These amendments were not passed as part of the new rules proposed in the Income-tax (Amendment) Bill, 2025, in Parliament. Instead, the Central Board of Direct Taxes (CBDT) made these amendments using its existing powers via a government notification (Notification No. 133/2025), dated August 18, 2025. This is called subordinate legislation, meaning rules are being changed by tax authorities themselves without getting any new official approval from the parliament. The notification inserted Rules 3C and 3D into the Income-tax Rules, 1962.