Key Changes in Perquisites & Allowances in I Tax Act, 2025

Key Changes in Perquisites & Allowances in Income Tax Act, 2025

The Income Tax Act, 2025, introduced by the Income Tax Department and effective from 1 April 2026, brings structural clarity and rationalisation in the taxation of perquisites and allowances under the head “Salaries.” . The changes in perquisites and allowances under the Income Tax Act, 2025, are evolutionary rather than revolutionary. They focus on clarity over complexity, structure over fragmentation, and compliance ease over interpretational challenges. While the fundamental taxability principles remain largely unchanged, the presentation, classification, and compliance approach have been significantly improved.

Motor Car Perquisite: Major Increase in Valuation Limits

Car Owned / Hired by Employer

Usage Type	Income Tax Act, 1961	Income Tax Act, 2025
Wholly for official duties	Nil	No change
Exclusively for personal use	Actual expenses + driver + wear & tear – employee recovery	No change
Partly official + partly personal
• Engine ≤ 1.6L (expenses borne by employer)	INR 1,800 p.m.	INR 5,000 p.m.
• Engine > 1.6L (expenses borne by employer)	INR 2,400 p.m.	INR 7,000 p.m.
• Engine ≤ 1.6L (expenses borne by employee)	INR 600 p.m.	INR 2,000 p.m.
• Engine > 1.6L (expenses borne by employee)	INR 900 p.m.	INR 3,000 p.m.
• Chauffeur perquisite (additional)	INR 900 p.m.	INR 3,000 p.m.

Car Owned by Employee (Employer Reimburses Expenses)

Usage	Income Tax Act, 1961	Income Tax Act, 2025
Wholly official use	Nil	Nil
Partly official + partly personal
• Engine ≤ 1.6L	Reimbursement – INR 1,800 p.m.	Reimbursement – INR 5,000 p.m.
• Engine > 1.6L	Reimbursement – INR 2,400 p.m.	Reimbursement – INR 7,000 p.m.

Major Changes in Other Perquisites

Particular	Income Tax Act, 1961	Income Tax Act, 2025	Change
Interest‑free / concessional loan	Taxable if loan > INR 20,000	Taxable if loan > INR 2,00,000	10x threshold increase
Gift / Token / Voucher perquisite	Exemption up to INR 5,000	Exemption up to INR 15,000	3x increase
Overseas medical treatment perquisite	Exemption up to INR 2,00,000	Exemption up to INR 8,00,000	4x increase

New Mandatory Conditions House Rent Allowance (HRA) :

Where annual rent exceeds INR 1,00,000, the following are now mandatory:

• Furnishing PAN of the landlord
• Declaration whether the landlord is a relative
• Mandatory rent agreement as supporting documentation
• Failure to meet any of the above conditions results in denial of HRA exemption

Structural Changes in the Income Tax Act 2025

The Income‑Tax Act, 2025, which becomes effective from 1 April 2026, reorganises and simplifies the structure of the Indian tax law. While the layout and section numbering have undergone significant restructuring, the fundamental tax framework remains broadly the same. The primary purpose is to make the statute easier to read, navigate, and implement. The Income Tax Act, 2025, is more of a structural and procedural reform rather than a substantive overhaul. It aims to enhance usability without altering the underlying tax philosophy. For taxpayers and professionals, the focus will now shift from relearning the law to adapting to the new structure and section references.

Comparison: Income Tax Act 1961 vs. Income Tax Act 2025:

Below is a crisp comparison outlining the structural transformation:

Particulars	Income‑tax Act 1961	Income‑tax Act 2025
Number of Sections	More than 700	536
Number of Chapters	23	23
Schedules	14	16
Total Pages (Content)	823 pages	622 pages
Effective Date	In force till 31 March 2026	Effective from 1 April 2026

Even though the 2025 Act has been re structured with fewer sections and refined chapter content, the core tax system, concepts, and principles remain largely consistent.

Chapters of the New Income‑tax Act, 2025

The Act continues to have 23 chapters, some with sub‑divisions. Below is a clean breakdown of each chapter and its purpose. Chapter‑wise Overview New Income‑tax Act, 2025

Chapter	Overview
Chapter 1	Preliminary
Chapter 2	Basis of Charge
Chapter 3	Incomes which do not form part of Total Income
Chapter 4	Computation of Total Income
Chapter 5	Income of Other Persons Included in the Total Income of the Assessee
Chapter 6	Aggregation of Income
Chapter 7	Set‑off or Carry Forward and Set‑off of Losses
Chapter 8	Deductions in Computing Total Income
Chapter 9	Rebate and Reliefs
Chapter 10	Special Provisions Relating to Avoidance of Tax
Chapter 11	General Anti‑Avoidance Rule (GAAR)
Chapter 12	Mode of Payment in Certain Cases
Chapter 13	Determination of Tax in Special Cases
Chapter 14	Tax Administration
Chapter 15	Return of Income
Chapter 16	Procedure for Assessment
Chapter 17	Special Tax Provisions for Certain Persons
Chapter 18	Appeals, Revision and Alternate Dispute Resolution
Chapter 19	Collection and Recovery of Tax
Chapter 20	Refunds
Chapter 21	Penalties
Chapter 22	Offences and Prosecution
Chapter 23	Miscellaneous

The Income‑Tax Act, 2025 is not a change in the tax regime; it is a restructuring and modernization of the law. The objective is to make the legislation Easier to understand, More logically organized, aligned with modern drafting standards, and user‑friendly for taxpayers and professionals alike. The tax system continues fundamentally unchanged, but navigating the law becomes significantly simpler and more intuitive.

New Tax Regime Slab Rates (Section 202)

The new tax regime continues as the default regime under Section 202. Slab Rates (Applicable to All Taxpayers)

Income Tax Slab	Tax Rate
Up to INR 4,00,000	NIL
INR 4,00,001 – INR 8,00,000	5%
INR 8,00,001 – INR 12,00,000	10%
INR 12,00,001 – INR 16,00,000	15%
INR 16,00,001 – INR 20,00,000	20%
INR 20,00,001 – INR 24,00,000	25%
Above INR 24,00,000	30%

Old Tax Regime Slab Rates (Optional)

Income Tax Slabs	Age < 60 Years & NRIs	Age 60–80 (Resident)	Age > 80 (Resident)
Up to INR 2,50,000	NIL	NIL	NIL
INR 2,50,001 – INR 3,00,000	5%	NIL	NIL
INR 3,00,001 – INR 5,00,000	5%	5%	NIL
INR 5,00,001 – INR 10,00,000	20%	20%	20%
Above INR 10,00,000	30%	30%	30%

Deductions Under the Income Tax Act, 2025

While the structure and section numbering have changed, the substance of most deductions remains similar. Key Deductions Mapping (Old Act vs New Act)

Deduction / Concept	IT Act 1961	IT Act 2025
Salary income definition	Sec 15	Sec 15
Standard deduction	Sec 16(ia)	Sec 19
Professional tax	Sec 16(iii)	Sec 19
Perquisites	Sec 17	Sec 17
Income from house property	Sec 22	Sec 20
Annual value	Sec 23	Sec 21
Home loan interest	Sec 24(b)	Sec 22
80C investments	Sec 80C	Sec 123
Pension / annuity	Sec 80CCC	Sec 123
NPS deduction	Sec 80CCD	Sec 124
Health insurance	Sec 80D	Sec 126
Education loan interest	Sec 80E	Sec 129
Donations	Sec 80G	Sec 133
Savings account interest	Sec 80TTA	Sec 153
Rebate	Sec 87A	Sec 156
HRA exemption	Sec 10(13A)	Schedule for exempt income
LTA exemption	Sec 10(5)	Schedule for exempt allowances
Gratuity exemption	Sec 10(10)	Schedule for retirement benefits
Leave encashment	Sec 10(10AA)	Same schedule

TDS Under the New Income Tax Act, 2025 :

TDS Major Changes at a Glance

• Simplification: Reduction of 25+ sections into a streamlined structure
• Automation: Increased reliance on system-driven compliance
• Lower Rates: Significant reduction in TCS rates for foreign remittances
• Clarity: Removal of ambiguity in areas like manpower supply
• Ease of Compliance: Faster processing for certificates and filings

A major structural reform All TDS provisions are consolidated under a single section: Section 393 – Tax to be Deducted at Source. This replaces scattered TDS sections (192 to 194T) under the 1961 Act and aims to streamline compliance for deductors.

Old vs New Act – Key Section Mapping :

Concept	Income Tax Act 1961	Income Tax Act 2025
New Tax Regime	Sec 115BAC	Sec 202
House property deduction	Sec 24	Sec 22
Rebate	Sec 87A	Sec 156
Medical insurance	Sec 80D	Sec 126
Return filing	Sec 139	Sec 263
Exempt incomes	Sec 10	Sec 11

The Income Tax Department has provided a section mapping tool to help taxpayers transition smoothly.

Impact of the Income Tax Act 2025 on Different Taxpayers

Salaried Individuals

• New Tax Year concept replaces “Assessment Year” and “Previous Year”.
• Higher exemption limits under the Income Tax Rules, 2026 for allowances.
• New regime remains default, but option to choose old regime continues.

NRI Taxpayers

• Stricter compliance on foreign asset disclosure.
• Heavy penalties for non‑reporting of:

• foreign bank accounts
• foreign securities
• overseas property

• NRE interest remains tax‑free, as before.

Senior Citizens

• Old‑regime slabs continue to offer higher basic exemption.
• New TDS threshold on interest income increased to INR 1 lakh.
• Form 15G/15H merged into a new Form 121 for ease of declaration.

Download – Income Tax Act, 2025 : The Act can be downloaded from the official Income Tax Department website and is effective from 1 April 2026.

Income Tax Act 2025 vs 1961 — Major Differences

Aspect	IT Act, 1961	New IT Act, 2025
Effective date	From 1 April 1962	From 1 April 2026
Structure	Long and complex	Simplified & reorganised
Year concept	AY + PY	One unified Tax Year
Default tax regime	Section 115BAC	Section 202
TDS	Scattered across many sections	All in Section 393
Compliance	High complexity	Clearer drafting
Virtual Digital Assets	Limited scope	Expanded to include broader fintech assets

Summary of Changes in perquisites & allowances in Income Tax Act, 2025

Compiled from the analysis shared by Rajput Jain and Associates, the Income Tax Act, 2025 introduces a cleaner, more modern framework while retaining the core essence of India’s income‑tax system. The reorganised sections, consolidated TDS regime, simplified slab structure, and clearer drafting aim to make compliance easier, more transparent, and aligned with digital governance. Summary of Changes in perquisites & allowances in Income Tax Act, 2025

• Motor Car Perquisite: Sharp rise in monthly perquisite valuation—increases of 2.5x to 3x across categories.
• Other Perquisites: Higher tax‑free thresholds for Loans, gifts, and Overseas medical treatment
• HRA Compliance Tightened: New documentation and relationship disclosure requirements for rent > INR 100,000.