Relief for Salaried Employees in Union Budget 2025
In a major relief for salaried taxpayers, the Central Board of Direct Taxes (CBDT) has substantially increased the threshold limits for tax-free perquisites. The changes were notified on August 18, 2025, under the Finance Act, 2025, and will apply from April 1, 2025, for Assessment Year (AY) 2026–27.
Previously, the salary income limit for perquisite exemption stood at ₹50,000 for specified employees and ₹2 lakh for overseas medical treatment. These limits, unchanged for decades, have now been raised to ₹4 lakh and ₹8 lakh respectively, through the introduction of Rules 3C and 3D under the Income-tax Rules, 1962.
Tax experts believe this move brings much-needed alignment with present economic realities, cost of living, and inflation.
What Are Tax-Free Perquisites?
Perquisites, commonly called “perks,” are benefits provided by employers in addition to salaries. While most perks are taxable, the Income Tax Act exempts certain benefits under defined conditions.
According to Section 17(2)(iii) of the Act, some benefits such as free car usage, supply of utilities, services of domestic help, and educational facilities are taxable only for “specified employees.”
Who Qualifies as a Specified Employee?
As explained by tax consultant Dr. Suresh Surana, specified employees include:
- Company directors,
- Employees holding 20% or more voting power, and
- Employees earning salary income (excluding non-monetary perks) above the prescribed limit.
With the new notification, the threshold has risen from ₹50,000 to ₹4 lakh. This means employees earning less than ₹4 lakh annually will no longer be classified as specified employees, shielding them from perquisite taxation on certain benefits.
Major Change in Overseas Medical Treatment Rules
The Finance Act, 2025 also updated the exemption relating to overseas medical treatment. Until now, the exemption applied only to employees with gross total income up to ₹2 lakh—a threshold set in 1993.
From AY 2026–27, the new limit has been raised to ₹8 lakh. This means employees with gross income up to ₹8 lakh can avail tax exemption on employer-funded medical treatment abroad, including travel and stay for the patient and one attendant.
According to legal expert S. Vasudevan of Lakshmikumaran & Sridharan Attorneys, this revision addresses inflation and the rising cost of healthcare. The exemption is also subject to the Liberalised Remittance Scheme (LRS) limit of USD 250,000 per year.
Why Were These Changes Introduced?
The earlier limits were set decades ago and had become outdated. For instance, the ₹50,000 limit for specified employees was fixed in 2001, while the ₹2 lakh ceiling for overseas medical treatment was established in 1993.
Rahul Singh, senior tax advisor at Taxmann, points out that both thresholds remained unchanged despite rising salaries, medical expenses, and inflation. “The Finance Act, 2025 has modernised the framework by empowering CBDT to revise limits through rules, ensuring flexibility in the future,” he noted.
How Will Employees Benefit?
The changes will directly impact middle-income earners. For example, an employee earning ₹3.9 lakh annually and receiving free educational facilities for children will not face perquisite taxation. Similarly, employees earning below ₹8 lakh annually will not be taxed on employer-funded overseas medical treatment.
Tax specialists believe this move will particularly help young professionals, middle-class employees, and families seeking advanced treatment abroad.
Legislative and Procedural Aspects
The amendments were introduced through CBDT Notification No. 133/2025, dated August 18, 2025. Unlike amendments debated in Parliament, this change came via delegated legislation, as permitted under Section 295 of the Income Tax Act.
Thus, these provisions were not part of the Income-tax (Amendment) Bill, 2025, tabled earlier this month. Instead, they took effect directly through notification in the India e-Gazette.
Conclusion
By raising the tax-free perquisite limits for specified employees and overseas medical treatment, the Finance Act, 2025 delivers a meaningful boost to salaried taxpayers. With inflation-adjusted thresholds, employees stand to save more and enjoy greater financial relief starting from April 2025.