Two Significant Changes in Threshold, Taxation of Perquisites for Salaried-Income Persons: Explained
Perquisites or perks may include company-provided cars, rent-free housing, concessional loans, or other facilities
Perquisites, also known as perks, are benefits or amenities that employers provide to salaried individuals over and above cash compensation or per se Salary. In India, many of these non-cash benefits are taxable and form part of a salaried person’s total income. The Central Board of Direct Taxes (CBDT) has recently notified two important threshold changes. Recent...
Perquisites, also known as perks, are benefits or amenities that employers provide to salaried individuals over and above cash compensation or per se Salary. In India, many of these non-cash benefits are taxable and form part of a salaried person’s total income.
The Central Board of Direct Taxes (CBDT) has recently notified two important threshold changes.
Recent Income Tax Rules Amendment
The changes have been introduced through the Income Tax (Twenty Second Amendment) Rules, 2025. By inserting two new provisions Rule 3C and Rule 3D into the Income Tax Rules, 1962, the CBDT has defined monetary thresholds of ₹4 lakh for salary income and ₹8 lakh for gross total income. These thresholds are relevant in determining the applicability of certain provisions under Section 17 of the Income Tax Act, 1961, which governs taxation of salary and perquisites.
Understanding Perquisites Under the Income Tax Act
Perquisites are covered under Section 17(2) of the Income Tax Act, 1961. They are broadly categorized as:
- Benefits or amenities granted free of cost or at concessional rates by an employer.
- Shares or securities allotted to employees at concessional prices.
- Rent-free accommodations, use of employer-owned assets, or other special facilities.
Rule 3 of the Income Tax Rules, 1962, prescribes methods for valuing these perquisites to arrive at their taxable value. The law further specifies situations when perquisites become taxable.
For instance, under Section 17(2)(iii), perquisites include benefits given:
- By a company to a director-employee.
- By a company to an employee who holds a substantial interest in the company.
- By any employer to an employee not covered by (1) or (2), provided the employee’s salary income, excluding non-monetary benefits, exceeds ₹50,000.
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
The Two New Rules: Rule 3C and Rule 3D
The Central Board of Direct Taxes (CBDT) notification dated August 18, 2025, inserted two new provisions after Rule 3B:
Rule 3C: Threshold for Salary Income
Rule 3C specifies that for the purposes of item (c) of sub-clause (iii) of clause (2) of Section 17, the prescribed salary income shall be ₹4 lakh. This means that where the law previously required perquisite taxation to be applied to employees with salary above ₹50,000, the benchmark has now been clearly reset at ₹4 lakh of income under the head “Salaries.”
Effect: Salaried individuals earning less than ₹4 lakh will not come under the purview of perquisite taxation under this specific provision. Those earning above ₹4 lakh will have to include such perquisites in their taxable income as prescribed.
Rule 3D: Threshold for Gross Total Income
Rule 3D deals with clause (vi) of the proviso to Section 17(2). It states that the prescribed gross total income shall be ₹8 lakh. This applies to situations where employees receive specified securities or sweat equity shares from their employer or former employer at a concessional rate or free of cost.
Effect: Only those with gross total income exceeding ₹8 lakh will be liable for taxation on such specified securities or sweat equity shares as per the Act.
Why These Changes Matter
These changes are significant because they provide clear monetary thresholds, which reduce uncertainty for both taxpayers and employers. Earlier, the absence of well-defined income levels for applying these provisions created room for differing interpretations, disputes, and litigation.
For salaried employees, especially those in the middle-income bracket, these rules make it easier to determine whether their perquisites will be taxable.
Practical Implications for Salaried Taxpayers
- Employees earning below ₹4 lakh (Salary Head): Such individuals are now outside the purview of perquisite taxation under Section 17(2)(iii)(c). For instance, if an employee earning ₹3.5 lakh annually is provided free or concessional benefits like subsidized housing, the value of those benefits may not attract tax under this clause.
- Employees earning above ₹4 lakh (Salary Head): Those above this threshold will continue to include the value of perquisites in their taxable income, as prescribed. For example, a salaried professional earning ₹7 lakh annually who receives a rent-free company-provided flat will have to include the taxable value of that accommodation in his or her income.
- Employees receiving securities or sweat equity shares: If the gross total income of an employee exceeds ₹8 lakh, and they receive shares or securities from their employer at a concessional rate or free of cost, the value of such allotment will be taxable. Those with gross total income below ₹8 lakh are exempt from this provision.
Effective Date
The new rules came into force from August 18, 2025, the date they were published in the Official Gazette. This means the thresholds will apply for income earned from that date onwards.
Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
