Big change in this tax free perquisite of a salaried employee in Budget 2025

Budget 2025 has increased the limits for being qualified for tax free perquisite for salaried. Now more employees (depending upon the increase in limit of gross total income to be notified) are eligible for tax-free perquisite for any expenditure incurred by the employer for travel outside India on the medical treatment of an employee or any member of the employee’s family.

Explanatory memorandum to Budget 2025 said: “These limits on the income of the employees for the purpose of calculating perquisites were put in place more than 20 and 30 years ago respectively. Thus, there is a need to adjust these limits accordingly to take into account changes in standard of living and economic conditions.”

The Income Tax Department has released new frequently asked questions (FAQ) which explain how the increase in limit on the income of employees for the purpose of calculating taxable perquisites apply.

Amendments in tax free perquisite value for employees

The Finance Minister said It is proposed that the provisions of section 17 may be amended so that the power to prescribe rules may be obtained to increase the limit on the gross total income of the employees so that,-
(I) the amenities and benefits received by such employees would be exempt from being treated as perquisites.
(II) the expenditure incurred by the employer for travel outside India on the medical treatment of such employee or his family member would not be treated as a perquisite.

These amendments will take effect from the 1st day of April, 2026 and shall accordingly, apply in relation to the assessment year 2026-27 and subsequent assessment years.

Aditi Goyal, Partner, Trilegal, says, "The limit of Rs. 50,000 was put in place more than two decades back and generally was not relevant anymore as the annual salary of most employees would typically exceed Rs. 50,000 per annum. It was important to update this limit to reflect the changes in the standard of living and development of the economy. The amendment will provide the government with the flexibility to prescribe a higher threshold, allowing more employees to receive tax free perquisites. However, this will not impact the taxation of perquisites provided to employee-directors or employees with a substantial interest in the company. The perquisites provided to such employees will continue to be taxed even if their salary is below the prescribed threshold."

Goyal adds: Similarly, the threshold of gross total income of Rs. 2,00,000 for determining the taxability of employer-covered travel expenses (pertaining to medical treatment of employees / their family members abroad) was unchanged for the past three decades. This led to additional financial burden for employees whose annual income exceeded Rs. 2,00,000. The changes proposed in the budget will allow the government to prescribe a higher threshold of annual income, thus reducing tax costs for more employees."

Divya Baweja, Partner, Deloitte India, says, "Currently, certain employer-provided benefits are treated as ‘perquisites’ if the employee’s salary exceeds Rs 50,000, a limit set by the Finance Act, 2001. Similarly, employer-incurred medical travel expenses outside India are exempt from perquisites only if the employee’s gross total income is within Rs 2 lakh, as per the Finance Act, 1992. These limits, set over two decades ago, required revision to align with changing economic conditions and living standards. The authorities have now proposed to amend these thresholds and shall notify new limits that better reflect the current socio-economic landscape. With the change in limits, more employees should get eligible for tax exemptions on perquisites, enabling them to receive certain benefits without payment of taxes. Thus, this revision may result in higher take-home salary, thereby leaving more spendable income in the hands of such employees. However, we will need to see the notification to study the impact."

Abbas Jaorawala, Senior Director and Head - Direct Tax, Khaitan Legal Associates, "The existing annual salary limits of Rs 50,000 and Rs 2 lakh were provided basis the economic situation 20 to 30 years ago. Considering the current level of salaries and non-taxable income slab, practically most employees who receive any such benefit from their employers would be considered to have received a taxable perquisite. This means that such employees need to pay income-tax on the value of the benefits received, which reduces their take-home salary. The proposed amendments should allow the government to prescribe the limits as per existing economic conditions and reduce the tax burden on employees not earning high salaries."

FAQs about tax free perquisite for employees’ or their family’s medical treatment abroad

According to the Income Tax Department website, here are the FAQs:

Q1 What are the present provisions that are being amended under section 17 by the Finance Bill 2025?

Ans: The present provisions provide for an upper limit on salary beyond which the following will be treated as perquisites and taxed in the hands of the employees:

• (a) the amenities and benefits (in general) received from employers
• (b) the expenditure incurred by the employer for travel outside India on the medical treatment of an employee or his family member.

Q.2 What are the changes proposed in the amendment to section 17 by the Finance Bill 2025?

Answer: There are 2 changes proposed to specify the limit on salary so that: a. The amenities and benefits (in general) received by employees with a salary below a certain limit would be exempt from being treated as perquisite.

The limits, presently at Rs 50,000 per annum, can now be prescribed by the Central Government.

The expenditure incurred by the employer for travel outside India on the medical treatment of an employee with a salary below a certain limit, or for his family member would not be treated as a perquisite. Such limits, presently at Rs 2,00,000 per annum, can now be prescribed by the Central Government.

Q.3 For the amendment proposed in section 17(2)(iii), will the limit on salary apply to all employees?

Answer: In case of a director of the company or a person who has a substantial interest in the company, these amenities and benefits will continue to be treated as perquisites irrespective of the salary earned. Therefore, the limit on salary specified shall only be applicable for an employee who is not a director nor a person who has a substantial interest in the employer company.

Q.4 If an employer has incurred expenditure for medical treatment and stay abroad of the employee, will this be a perquisite?

Answer: No, the expenditure on medical treatment and stay abroad for any employee, subject to the extent permiƩed by the Reserve Bank of India, will not be treated as a perquisite. It is clarified that the proposed amendment [refer (b) in Q.1] relates to travel outside India on medical treatment of an employee or his family member

Mihir Tanna, associate director, S.K Patodia LLP says, Increase in the limits on the income of the employees for the purpose of calculaing perquisites. Currently, perquisites like providing housing facilities, vehicles, and medical treatment outside India for the employee or their family outside India are taxed as Salary. Limits are provided for amenities and benefits. Furthermore, a salary limit is provided for medical treatment outside India. These limits are proposed to be revised for both the above cases and new rules will be notified. However, it is also clarified that in case of a director of the company or a person who has a substantial interest as shareholder in the company, these amenities and benefits will continue to be treated as perquisites irrespective of the salary earned."

What did the Budget Explanatory Memorandum say about tax free perquisite?

“The existing provisions of clause (2) of section 17 provide, inter-alia, that ‘perquisite’ includes the value of any benefit or amenity granted or provided free of cost or at concessional rate by any employer (including a company) to an employee whose income under the head "Salaries" as a monetary benefit does not exceed fifty thousand rupees. This upper limit on income was determined by the Finance Act 2001.

Further, the proviso to clause (2) of section 17 provides that any expenditure incurred by the employer for travel outside India on the medical treatment of an employee or any member of the employee’s family shall not be included in ‘perquisite’, subject to the condition that the gross total income of such employee does not exceed two lakh rupees. This upper limit on income was determined by the Finance Act, 1993.

These limits on the income of the employees for the purpose of calculating perquisites were put in place more than 20 and 30 years ago respectively. Thus, there is a need to adjust these limits accordingly to take into account changes in standard of living and economic conditions.”

"The said revision could result in lower taxes as certain benefits and perquisites may become tax-exempt, thereby increasing disposable income in the hands of such employees which could further result in higher spend on investments and consumption," says Baweja from Deloitte.