CBDT Notifies Salary & Medical Perquisite Limits u/s 17(2)

Notification No. 133/2025, dated 18-08-2025

Taxation of Perquisites and Specified Employees

Under Section 17(2)(iii) of the Income-tax Act, certain benefits or amenities provided by an employer are considered perquisites and are taxable only in the hands of specified employees. These include employees who are directors of a company, those having a substantial interest in the company, and employees whose monetary income under the head ‘salaries’ crosses the prescribed threshold. Earlier, this threshold was fixed at ₹50,000, beyond which an employee would qualify as a specified employee.

Medical Treatment Outside India and Taxability

As per clause (vi) of the first proviso to Section 17(2), expenses incurred by the employer for medical treatment of an employee or their family members outside India are taxable as perquisites, subject to conditions. In addition, the cost of travel for the employee, family members, or an attendant accompanying the patient for such treatment abroad is also considered a taxable perquisite if the employee’s gross total income (excluding such travel cost) exceeded ₹2,00,000. These provisions ensured that such exemptions applied only to employees within a specified income bracket.

Changes Introduced by the Finance Act, 2025

The Finance Act, 2025 brought a significant change by removing the earlier fixed thresholds of ₹50,000 under Section 17(2)(iii) and ₹2,00,000 under Section 17(2)(vi). Instead of static figures, the power was delegated to the Central Board of Direct Taxes (CBDT) to prescribe income thresholds from time to time. This amendment was aimed at aligning the taxation of perquisites with changing standards of living and prevailing economic conditions, thereby ensuring greater flexibility and fairness.

New Thresholds under Rule 3C and 3D

Pursuant to this amendment, the CBDT notified new limits through the insertion of Rules 3C and 3D in the Income-tax Rules, 1962. Rule 3C now prescribes that for Section 17(2)(iii), the threshold salary income shall be ₹4,00,000. Thus, employees earning above this limit will be treated as specified employees for perquisite taxation. Similarly, Rule 3D provides that for the proviso to Section 17(2)(vi), the prescribed gross total income shall be ₹8,00,000. Consequently, the cost of foreign medical travel and related expenses will be taxable if the employee’s gross total income exceeds this revised limit.

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