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NEW DELHI, 04 October 2025:
The taxation landscape in India has recently undergone significant changes, particularly impacting the way employee benefits are assessed under the Income Tax Act’s Section 17(2). This section is crucial for determining the taxable salary of employees, focusing on perquisites—benefits or amenities provided by employers, often in non-cash forms, that add value to their overall compensation packages. Understanding these changes is essential for both employees and employers navigating the intricate world of salary taxation.
Understanding Perquisites and Their Categories
Perquisites can encompass a variety of benefits, ranging from rent-free accommodation to employer-paid medical reimbursements, stock options, and even concessional housing. Although these perks may not enhance an employee’s take-home pay directly, they hold substantial economic value and are subject to taxation under specific conditions. This creates a unique situation where benefits that appear benign can significantly impact an employee’s taxable income.
Under Section 17(2), perquisites can be broadly divided into two categories. The first includes those provided free of cost or at a concessional rate. Classic examples involve rent-free or concessional housing, as well as the provision of company vehicles for personal use. The second category focuses on reimbursements made by the employer. This can include expenses such as child school fees, fuel, or personal travel costs. However, the law has also identified certain facilities that are exempt from being categorized as perquisites, such as recreational amenities for employee groups, training expenses, and basic welfare provisions like snacks during working hours. These safeguards aim to prevent common workplace benefits from being unjustly taxed.
Revised Monetary Thresholds for Taxation of Perquisites
A notable change introduced by the Central Board of Direct Taxes (CBDT) on 18 August involves revised monetary thresholds under Section 17(2). Previously, benefits or amenities provided by employers free of cost were taxable only if the employee’s salary exceeded ₹50,000 annually. The recent amendment has substantially raised this threshold to ₹4,00,000 per year. This means that employees earning below this significant limit will no longer face taxation on certain employer-provided amenities.
To illustrate, consider an employee working for a mobile phone company that offers free phones for personal use. Under the new amendment, only those employees whose annual salary exceeds ₹4,00,000 will face taxes on the value of the phone. For employees below this income level, the benefit remains untaxed, providing them with a substantial financial reprieve.
Medical Treatment Exemptions: A Boost for Employees
Another critical aspect of the recent amendments pertains to employer-funded medical treatment expenses incurred abroad. Previously, the exception was available only to employees whose gross total income did not exceed ₹2,00,000. With the new provisions, this threshold has been increased to ₹8,00,000. Essentially, this change allows employees earning up to ₹8,00,000 to enjoy exemptions for medical expenses borne by their employers, given they also adhere to specific Reserve Bank of India (RBI) conditions.
The implications of these updates are significant. By effectively raising the thresholds, the law acknowledges inflation and the escalating cost of living, ensuring that the taxation of perquisites primarily impacts higher-income earners rather than those with modest salaries. This shift is particularly beneficial for middle-income earners, who often rely on non-cash benefits as a key component of their overall compensation.
A Balanced Approach to Taxation
The amendments to Section 17(2) mark an important step in rationalizing the taxation of perquisites. By increasing the salary threshold for taxing employer-provided benefits from ₹50,000 to ₹4,00,000 and the gross income exemption limit for foreign medical treatment expenses from ₹2,00,000 to ₹8,00,000, the law now reflects current economic realities more accurately. Employees stand to benefit from a reduced tax burden on non-cash benefits, allowing for higher take-home pay and improving their financial well-being.
Employers will also benefit from this clarity when structuring salary packages. The amendments empower companies to design attractive compensation structures without incidentally imposing a heavier tax load on their employees. Overall, these reforms signal a timely and equitable move in the realm of salary taxation, aiming to bolster economic stability and support employees at various income levels.
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Original source: www.livemint.com
