What a higher threshold on perquisites means for employees

Examples include rent-free accommodation, concessional housing, employer-paid medical reimbursements, insurance premiums, or stock options. While such benefits may not directly increase an employee’s take-home pay, they constitute real economic value and are therefore subject to tax in specified cases.

Perquisites under Section 17(2) can broadly be grouped into two categories:

The first relates to perquisites provided free of cost or at concessional rates. Classic examples include rent-free accommodation, concessional housing, or the provision of a company motor car for personal use.

The second category relates to reimbursements made by the employer directly or indirectly, such as child school fees, fuel expenses, or personal travel costs.

The law carefully excludes certain facilities from the ambit of perquisites. For example, recreational amenities provided for a group of employees, expenditure on training or refresher courses, and basic welfare facilities like tea and snacks served during working hours are not treated as perquisites. These exclusions ensure that everyday welfare measures or professional development activities are not unnecessarily taxed.

Revised monetary thresholds

On 18 August, the Central Board of Direct Taxes (CBDT) issued a circular revising specific monetary thresholds under Section 17(2).

The first relates to Section 17(2)(iii)(c), which governs taxation of benefits or amenities provided by the employer free of cost or at a concessional rate. Until recently, such perquisites were taxable if the employee’s salary exceeded ₹50,000 per year. The new amendment has raised this threshold to ₹4,00,000 per year. This means that employees earning below this level will not be taxed on certain employer-provided amenities.

For example, if a mobile phone company provides free phones to its employees for personal use, the value of the phone will be taxed as a perquisite only for those whose salary exceeds ₹4,00,000 annually. For employees earning below this figure, the benefit will not be taxable.

The second change relates to the proviso in Section 17(2)(vi), which deals with the exclusion of medical treatment expenses incurred abroad from the ambit of perquisites. Previously, such exclusion was available only if the employee’s gross total income did not exceed ₹2,00,000. The amendment has now raised the limit to ₹8,00,000. This means that employees with gross total income up to ₹8,00,000 can enjoy exemption on employer-borne medical expenses incurred abroad, provided the expenditure also meets Reserve Bank of India (RBI) conditions.

The significance of these amendments lies in their practical impact. By substantially increasing thresholds, the law acknowledges inflation and the rising cost of living. It ensures that taxation of perquisites falls primarily on higher-income earners rather than on employees with modest salaries. For middle-income earners, who often rely on such benefits as part of their compensation, the changes provide welcome relief. Employers also gain greater clarity when designing salary packages.

The amendments to Section 17(2) mark an important step in rationalizing the taxation of perquisites. By raising the salary threshold for taxation of employer-provided benefits from ₹50,000 to ₹4,00,000, and the gross total income threshold for exemption on foreign medical treatment expenses from ₹2,00,000 to ₹8,00,000, the law now better reflects present-day economic conditions.

Employees stand to benefit from reduced tax liability on non-cash benefits, while employers gain renewed scope to create attractive compensation structures without unintentionally burdening staff. Overall, these reforms represent a timely, employee-friendly, and equitable move in the sphere of salary taxation.

Neeraj Agarwala is a partner at Nangia & Co. Llp. Neetu Brahma, a consultant at Nangia & Co. contributed to the column.