Free Perquisite Limits Raised to INR 4 & INR 8 Lakh

Good News for Salaried Taxpayers- New Rules for Salaried Employees  

Finance Act, 2025 raises tax-free salary perk limits to INR 4 lakh for specified employees and INR 8 lakh for overseas medical treatment, effective April 1, 2025. The Finance Act, 2025 has brought major relief for employees by raising the income thresholds for tax-free perquisites. Starting April 1, 2025 (AY 2026–27),

Free Perquisite Limits Raised: Free Perquisite Limits Raised to INR 4 Lakh and INR 8 Lakh

The Central Board of Direct Taxes notification raises income thresholds for tax-free perquisites under the Finance Act, 2025—effective from April 1, 2025 (AY 2026–27). This change ensures that a wider section of middle-class salaried taxpayers can enjoy company-provided perks without additional tax liability.

What is perquisite taxation?

Higher Tax-Free Thresholds at a Glance -U/s 17(2) of the Income-tax Act, certain benefits provided by employers are taxed as “perquisites.” The Central Board of Direct Taxes has inserted Rules 3C and 3D into the Income-tax Rules, 1962, significantly enhancing the income thresholds that determine eligibility for tax-free perquisites:

Taxable only for specified employees (as per Rule 3):

• Use of car or other conveyance
• Services of sweeper, gardener, watchman, personal attendant
• Supply of gas, electricity, water
• Free/low-cost education facilities
• Transport facility

What It Means for Specified Employees

The term “specified employee” refers to those earning above the prescribed salary threshold. Until now, anyone crossing INR 50,000 was subject to tax on many perquisites. With the new INR 4 lakh benchmark, employees below this limit can receive certain benefits—like company-provided staff or non-cash facilities—without them being taxed as income.

Who is a Specified Employee?

• As explained by experts: A director-employee or An employee holding ≥20% voting power in the company or Any other employee whose salary income exceeds the prescribed threshold (now INR 4 lakh). Thus, employees earning below INR 4 lakh can receive these benefits tax-free, unless they fall in categories (1) or (2).
• Specified employees: Limit raised from INR 50,000 (unchanged since 2001) to INR 4 lakh. Employees earning up to INR 4 lakh will not be treated as “specified employees,”.

Overseas Medical Treatment Exemption (Rule 3D)

• Overseas medical treatment: Limit raised from INR 2 lakh (unchanged since 1993) to INR 8 lakh. Those with gross total income up to INR 8 lakh can claim exemption on overseas medical treatment expenses. This update allows more individuals to access tax-free benefits such as:
  • Interest-free or concessional loans from employers,
  • Employer-provided domestic help or children’s education facilities,
  • Company-funded overseas medical treatment and related travel.
• The INR 4 lakh and INR 8 lakh figures are thresholds of salary/gross total income to decide whether certain benefits can be excluded from perquisite taxation. They are not the value of the perquisites themselves. Earlier, only employees with gross total income ≤INR 2 lakh could claim exemption for employer-funded overseas treatment and travel. This has now been raised to INR 8 lakh, subject to conditions:

• • Treatment must be for the employee or a family member.
  • Travel/stay abroad covers the patient and one attendant only.
  • Expenditure must comply with RBI’s LRS cap (currently USD 250,000 per annum).
  • If income exceeds INR 8 lakh, such expenditure will be taxed as a perquisite.
  • The exemption for overseas medical treatment and related travel has also been liberalised: Key conditions remain:
  • Treatment must be conducted abroad.
  • Travel can include the patient plus one attendant.
  • Expenses must comply with RBI’s LRS cap (currently INR 250,000 per annum).
  • Employees earning above INR 8 lakh will not qualify for this exemption.

Legal Basis

• Implemented through Notification No. 133/2025, dated 18 August 2025. Issued under Section 295 of the Income-tax Act, 1961 (delegated rule-making powers). These changes are subordinate legislation, not part of the Income-tax (Amendment) Bill, 2025 — hence not debated in Parliament. From AY 2026–27, employees earning up to INR 4 lakh escape taxation on certain perquisites, while those earning up to INR 8 lakh can receive tax-free overseas medical treatment. This long-awaited relief reduces the tax burden on lower and middle-income salaried taxpayers.

Practical Example : How the New Thresholds Work

Case 1: Employee earning INR 3.5 lakh (below INR 4 lakh threshold) – Employee A (Salary: INR 3.5 lakh)

• Since the salary is below INR 4 lakh, the employee is not treated as a specified employee.
• This means certain perquisites like:
  • Interest-free/concessional loans from the employer,
  • Use of company staff (domestic help, sweeper, gardener, watchman),
  • Free education facilities for children,
    will not be taxed in the employee’s hands.
• Additionally, if this employee needs overseas medical treatment, they can also claim exemption (since income is below INR 8 lakh).
• Result: Both regular perks and medical travel abroad can remain tax-free.

• • Not a specified employee → can enjoy free education facilities, company-provided staff, etc. tax-free.
  • Also eligible for tax-free overseas medical travel (since <INR 8 lakh).

Case 2: Employee earning INR 6 lakh (above INR 4 lakh but below INR 8 lakh)- Employee B (Salary: INR 6 lakh)

• Since the salary is above INR 4 lakh, the employee is classified as a specified employee.
• This means non-monetary perquisites like company-provided staff, education facilities, or interest-free loans will now be taxable.
• However, because the salary is still below INR 8 lakh, this employee can still claim exemption for overseas medical treatment and related travel (if provided by the employer).
• Result: Overseas medical perks can remain tax-free, but other company perks become taxable.
  • Treated as a specified employee → non-monetary perks (education, staff, etc.) become taxable.
  • But still eligible for tax-free overseas medical treatment (since <INR 8 lakh).

Case 3: Employee earning INR 9 lakh (above INR 8 lakh) – Employee C (Salary: INR 9 lakh)

• Salary exceeds both limits.
• This employee will be treated as a specified employee and cannot claim overseas medical treatment exemption.
• Almost all employer-provided perquisites become taxable.
• Result: No major perquisite exemptions available.

• • Treated as a specified employee → all non-monetary perks taxable.
  • Overseas medical treatment exemption not available (>INR 8 lakh).

In summary : Why the Change ?

• The INR 50,000 (2001) and INR 2 lakh (1993) thresholds were outdated. Inflation, higher incomes, and rising medical costs had eroded their relevance. Finance Act, 2025 modernises these provisions to align with current economic realities and extend relief to a wider section of salaried employees.

• Earlier, the threshold limits were set at INR 50,000 for specified employees and INR  2 lakh for overseas medical treatment. These have now been significantly raised to INR  4 lakh and INR  8 lakh, respectively.
• It is important to note that the revised limits of INR 4 lakh and INR  8 lakh refer to the employee’s salary or gross total income threshold, which determines eligibility for exclusion of certain benefits/amenities from perquisite taxation. These limits do not represent the monetary value of the perquisites themselves. With the new INR 4 lakh and INR 8 lakh thresholds, millions of salaried individuals stand to benefit through reduced taxable income, fairer exemptions, and enhanced relief for medical and welfare needs.