- Existing provisions regarding certain perquisites: The following perquisites, are taxable only when an employee is a specified employee. In other words, the perquisites received by a non-specified employee are not taxable.
- Service of a sweeper, gardener, watchman, or personal attendant.
- Supply of Gas, Electricity, or water for house-hold purposes.
- Education facility to employee’s family members.
- Leave Travel Concession or assistance.
- Medical facility.
- Car or any other automotive conveyance.
- Transport facility by a transport undertaking.
An employee is either a specified employee or a non-specified employee. Let us examine who is specified employee and who is non-specified employee.
- Non-specified Employee: Any employee, other than a specified employee, is a “non-specified employee”.
- Specified employee: The following employees are deemed as specified employees:
1) A director-employee
2) An employee who has substantial interest (i.e. beneficial owner of equity shares carrying 20% or more voting power) in the employer-company
3) An employee whose monetary income under the salary exceeds Rs.50,000. (Monetary Income means Income chargeable under the salary but excluding perquisite value of all non-monetary perquisites). – Section 17(2) (iii) (c).
Monetary Limit of Rs. 50,000 is practically out-dated: The classification between specified and non-specified employee is of limited application in the practical sense. This is because an employee is referred to a non-specified employee only when he is drawing annual salary of Rs. 50,000 or less in a financial year. It is highly unlikely and remotely impossible that an employer will provide certain specified benefits (listed above from Sr. no. 1 to 7) free of cost or at concessional rate to non-specified employees who are earning up to Rs. 50,000 in a year. Since the exemption slab for all individuals is at least Rs. 3,00,000 (for the AY 2024-25), one can infer that mostly all employees, who pay income tax are specified employees. So, the statement that perquisites (mentioned above from Sr. no. 1 to 7) received by a non-specified employee are not taxable, does not have much practical utility, as all employees paying tax are specified employees.
(B) Existing provisions regarding medical facility given outside India:
Any expenditure incurred or reimbursed by an employer on medical facility/treatment is a taxable perquisite if gross total income employee exceeds Rs. 2,00,000 (before including this expenditure)- Section 17 (2) (vi)
Recently enacted amendments introduced new Rules 3C and 3D into the Income-tax Rules, 1962, to set specific income thresholds for exempting certain employee perquisites from taxation. The Annual Salary monetary limited specified under Section 17(2) (iii) (c) has been revised from Rs. 50,000 to Rs. 4,00,000 vide new Rule 3C and Annual Gross Income monetary limited specified under Section 17(2)(vi) has been revised from Rs. 2,00,000 to Rs. 8,00,000 vide new Rule 3D.
- Rule 3C: Tax exemption on perquisites received by a non-specified employee:
This rule pertains to the exemption of certain non-monetary perquisites including medical benefits provided by an employer to non-specified employee.
For a salaried employee, if their “income under the head salaries” is less than or equal to ₹4,00,000, then certain perquisites provided by the employer will not be taxed.
- Rule 3D: Tax exemption on any expenditure incurred by the employer on overseas medical expenses:
This rule provides an exemption any expenditure incurred by the employer on medical treatment outside India, and travel and stay abroad including that of attendant.
This exemption applies if the employee’s “gross total income (before claiming Chapter VIA deductions)” is less than or equal to ₹8,00,000.
For employees who meet this income threshold, overseas medical expenses (including travel and stay) paid for by the employer are exempt from tax.
Important considerations:
Different income criteria: It is important to note that Rule 3C considers “income under the head salaries,” while Rule 3D refers to “gross total income (before claiming Chapter VIA deductions)”.
Effective date: These amendments came into force on their publication in the Official Gazette on August 18, 2025, and are applicable from the assessment year 2026–2027 onwards.
Increased limits: The new rules significantly increase previous limits. For specified employees, the limit for tax-free perquisites was ₹50,000, and for overseas medical treatment, it was ₹2 lakh. The new limits are now ₹4 lakh and ₹8 lakh, respectively.
In short, the amendments can be summarized as under: –
- Rule 3C – If salary is less than or equal to Rs. 4,00,000/-, then certain perquisites including medical reimbursement will not be taxed.
- Rule 3D – If gross total income (before claiming chapter VIA deductions) is less than or equal to Rs. 8,00,000/-, then, overseas medical expenses can be exempt.
Let us understand these rules with the help of three different cases: –
Case No. 1 – Employee X
- Salary Income: Rs. 3,00,000
- Gross Total Income (before claiming chapter VIA deductions): ₹3,60,000
- Perquisites received:
- Employer-paid medical facility: ₹30,000
- Expenditure on Overseas Medical treatment: ₹1,00,000
Taxability of perquisites in case 1:
Salary ≤ Rs. 4,00,000 → Rule 3C will be applicable → Medical facility not taxable.
Gross Total Income ≤ Rs. 8,00,000 → Rule 3D will be applicable → Expenditure on Overseas Medical Treatment not taxable.
Total Taxable perquisites = Nil
Case No. 2 – Employee Y
- Salary Income: Rs. 6,00,000
- Gross Total Income (before claiming Chapter VIA deductions): Rs. 7,00,000
- Perquisites received:
- Employer-paid medical facility: Rs. 60,000
- Expenditure on Overseas Medical treatment: ₹1,00,000
Taxability of perquisites in case 2:
Salary more than ₹4,00,000 → Rule 3C will not apply → Medical facility taxable.
Gross Total Income (before claiming Chapter VIA deductions) is ≤ ₹8,00,000 → Rule 3D will be applicable → Expenditure on Overseas Medical treatment not taxable.
Taxable perquisites = Rs. 60,000 (medical facility only)
Case No. 3 – Employee Z
- Salary Income: Rs. 7,50,000
- Gross Total Income (before claiming Chapter VIA deductions): Rs. 10,00,000
- Perquisites received:
- Employer-paid medical facility: Rs. 60,000
- Expenditure on Overseas Medical treatment: ₹1,00,000
Taxability of perquisites in case 3:
Salary Income > Rs. 4,00,000 → Rule 3C will not apply → Medical facility taxable.
Gross Total Income > Rs. 8,00,000 → Rule 3D will also not apply → Expenditure on Overseas Medical treatment taxable.
Taxable perquisites = Rs. 60,000 (medical) + Rs. 1,00,000 (Expenditure on Overseas Medical treatment) = Rs. 1,60,000.
Author:
CMA Sunil Kumar Bhatia,
M.Com., FCMA, DFA.
Former Sr. General manager (Finance),
Power Grid Corporation of India Limited.
Disclaimer: The contents of this article are for informational purposes only. The user
may refer to the relevant notification/ circular/ decisions issued by the respective
authorities (Copy of Relevant Notification is produced as under) for specific interpretation and compliances related to a particular subject matter)
******************
MINISTRY OF FINANCE
(Department of Revenue)
(CENTRAL BOARD OF DIRECT TAXES)
NOTIFICATION
New Delhi, the 18th August, 2025.
INCOME-TAX
G.S.R. 555(E).–––In exercise of the powers conferred by clause (2) of section 17 read with section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby makes the following rules further to amend the Income-tax Rules,1962, namely: ‒
1. (1) These rules may be called the Income tax (Twenty Second Amendment) Rules, 2025.
(2) They shall come into force on the date of their publication in Official Gazette.
2. In the Income-tax Rules, 1962, after rule 3B, the following rules shall be inserted, namely:
3C. Salary income for the purposes of item (c) of sub-clause (iii) of clause (2) of section 17 of the Act. ––
For the purposes of item (c) of sub-clause (iii) of clause (2) of section 17 of the Act, the prescribed income under the head “Salaries” shall be four lakh rupees.
3D. Gross total income for the purposes of clause (vi) of Proviso to clause (2) of section 17 of the Act. ––
For the purposes of clause (vi) of Proviso to clause (2) of section 17 of the Act, the prescribed gross total income shall be eight lakh rupees.”
[Notification No. 133/2025/F. No. 370142/27/2025-TPL]
KRITIKA JAIN, Under Secy. (Tax Policy and Legislation)
Note: The Income-tax Rules,1962 were published in the Gazette of India, Extraordinary, Part II, section 3, sub-section (ii), vide number S.O. 969 (E) dated the 26th March, 1962 and was last amended vide notification number G.S.R. 553(E), dated the 14th August, 2025.