CBDT Introduces New Rules on Employer-Provided Benefits: Salary Limit 4 Lakh and Gross Total Income Limit ₹8 Lakh

In a major move to provide tax relief for salaried individuals, the Central Board of Direct Taxes (CBDT) has updated the monetary limits for the taxation of certain perks. In a notification dated August 18, 2025, the CBDT introduced two new rules, 3C and 3D. These rules set salary and gross total income limits of ₹4 lakh and ₹8 lakh, respectively, for taxing specific non-cash benefits provided by employers. This change mainly benefits middle-income salaried employees by exempting them from taxes on certain perks.

Effective from August 18, 2025, these changes simplify the tax treatment of perks and provide targeted relief. Previously, the threshold for many of these benefits was a mere ₹50,000, a figure that had not been updated for some time.

Key Highlights of the New Perquisite Rules:

Decoding Rule 3C: Relief for Perquisites like Rent-Free Accommodation

Rule 3C of the Income Tax Rules sets a salary limit of ₹4,00,000 for Section 17(2)(iii)(c) of the Income Tax Act. If an employee's salary, excluding non-monetary benefits, does not exceed this limit, certain perks provided by the employer will not be taxable.

Perks in this category include benefits and amenities such as:

• Rent-free or concessional accommodation
• Gas, electricity, or water supply
• Free or concessional domestic servants
• Cab facilities

Understanding "Salary" for Rule 3C:

For this rule, 'salary' includes basic pay, dearness allowance (if part of retirement benefits), bonus, commission, and other taxable allowances. The value of the perks is not included when calculating the ₹4 lakh limit.

Practical Examples:

Scenario 1: Salary below the threshold
Mr. A has a salary of ₹3,80,000 per year and receives rent-free accommodation from his employer. Because his salary is below the ₹4 lakh limit, the value of the rent-free accommodation will not be added to his taxable income.

Scenario 2: Salary above the threshold
Ms. B has a salary of ₹5,00,000 per year and also receives rent-free accommodation. Since her salary exceeds the ₹4 lakh limit, the value of the accommodation, calculated according to the rules, will be considered a taxable perk and added to her total income.

Decoding Rule 3D: Exemption for Sweat Equity Shares and Concessional Loans

Rule 3D sets a gross total income limit of ₹8,00,000 for exemptions under the proviso to Section 17(2)(vi) of the Income Tax Act. This rule mainly concerns the taxation of specified securities or sweat equity shares allotted or transferred by an employer to an employee, either for free or at a reduced rate.

If an employee's gross total income in a financial year does not exceed ₹8 lakh, the value of these sweat equity shares or specified securities will not be taxed as a perk.

Understanding "Gross Total Income" for Rule 3D:

Gross Total Income is the total income computed under five heads of income (Salaries, House Property, Profits and Gains of Business or Profession, Capital Gains, and Other Sources) before making any deductions.

Practical Examples:

Scenario 1: Gross Total Income below the threshold
Mr. C has a gross total income of ₹7,50,000 for the financial year. His employer gives him sweat equity shares worth ₹50,000 at a reduced rate. Since his gross total income is below the ₹8 lakh limit, the value of these shares will not be taxed.

Scenario 2: Gross Total Income above the threshold
Ms. D has a gross total income of ₹9,00,000. Her employer grants her sweat equity shares. Because her gross total income exceeds the ₹8 lakh limit, the market value of these shares on the exercising date, minus what she paid, will be taxed as a perk.

The Impact of the New Rules

These changes are a welcome development for salaried taxpayers, especially those in lower to middle-income brackets. Increasing the perquisite limits makes tax regulations more relevant to current economic realities and the rising cost of living.

For employers, this update simplifies payroll processing and lowers the tax burden on employees, which could lead to a higher take-home salary for many. It is essential for both employers and employees to understand these new rules for accurate tax compliance this financial year.

In conclusion, the new CBDT rules on perquisite taxation represent a positive step toward a more straightforward tax structure for salaried individuals. They offer significant relief and clarity.

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