Summary of this article
These changes announced for taxation on prerequisites align old thresholds with today’s income levels and are likely to benefit lower and mid-income earners who receive such non-cash benefits. Importantly, the relief does not extend to all perks, benefits like stock options, interest-free loans, gifts, etc., will continue to be taxed as before.
The Central Board of Direct Taxes (CBDT) has revised the taxation rules around employer-provided perks for salaried individuals who receive non-cash benefits as part of their pay packages.
Through a notification on August 18, 2025, the CBDT raised the income thresholds that determine how such prerequisites are taxed. The changes, which come into effect from April 1, 2025 (applicable for Assessment Year 2026-27), are significant because the old limits had remained unchanged for decades, even as salaries and the cost of living rose sharply.
What has changed?
Until now, the income threshold for being classified as a “specified employee”, the category of workers whose non-monetary benefits are taxed, was set at just Rs 50,000. That figure was fixed back in 2001 and has lost relevance in today’s pay structures. The new notification increases this limit to Rs 4 lakh.
What are the prerequisites? These are basically non-cash benefits an employee gets (other than their income), like a car, any rent-free accommodation, etc.
These non-cash benefits, provided by employers to salaried individuals, can also form a part of taxable salary.
What does the change mean in practice? Suppose an employee’s salary income is up to Rs 4 lakh. In that case, certain non-cash perks provided by the employer such as a company car, the services of domestic staff like a driver or gardener, supply of gas and electricity, or free education facilities for children, will not be treated as taxable income.
Once salary crosses the Rs 4 lakh mark, these benefits become taxable. However, directors of companies and employees holding substantial ownership stakes remain taxable on these benefits regardless of the threshold.
Increased Thresholds For Medical Treatments Outside India
Another important revision concerns medical treatment outside India. Earlier, if an employer covered the travel and stay expenses for an employee or their family member undergoing treatment abroad, the exemption was available only if the employee’s gross total income did not exceed Rs 2 lakh. This limit was first introduced in 1993 and has not been touched since. The new rules, however, now raise it to Rs 8 lakh.
But this exemption is not unlimited since it is still subject to Reserve Bank of India approvals under foreign exchange rules, which currently cap remittances for medical treatment at USD 250,000 a year. The costs can also only cover the patient and one accompanying attendant.
Still, raising the income ceiling fourfold means that many more middle-income employees will now qualify for the tax break when faced with high overseas medical expenses.
What remains unchanged?
It is important to note that these revisions do not apply across all non-cash benefits. There are other perquisites which remain taxable regardless of the employee’s income level. These are:
Stock options
Interest-free or concessional loans
Travel reimbursements
Food allowances
Gifts
Club memberships
The CBDT has increased the taxable thresholds for specific non-monetary perks and medical expenses for treatment abroad.
This notification has come under the Income-tax (Twenty Second Amendment) Rules, 2025, by introducing two new provisions, namely:
Rule 3C, which sets the Rs 4 lakh salary benchmark; and
Rule 3D, which sets the Rs 8 lakh gross total income as the threshold for overseas medical treatment
Moreover, since this amendment was done under CBDT’s delegated powers, it was not part of the amendments recently introduced in Parliament through the Income-tax Bill, 2025.
These changes will come into effect next year and for salaried employees it means calculating tax on perquisites will look very different now. Those who earn just below the new thresholds will gain the most, as benefits that were earlier fully taxable may now be excluded from their tax liability.
