On 18th August 2025, the Central Board of Direct Taxes (CBDT) issued Notification No. 133/2025, inserting Rule 3Cand Rule 3D into the Income-tax Rules, 1962. These amendments bring clarity to the valuation of perquisites under Section 17 of the Income-tax Act, 1961, by prescribing specific income thresholds for claiming exemptions.
This move effectively restricts perquisite-related tax relief to lower and middle-income salaried employees, while higher-income individuals will no longer enjoy such benefits.
Rule 3C – Salary Income Threshold for Perquisites
Under Rule 3C, the prescribed limit of salary income is ₹4,00,000 for exemptions available under Section 17(2)(iii)(c).
✅ Effect
- Employees with salary up to ₹4,00,000 can claim exemptions on certain perquisites (like meal coupons, free accommodation, or medical reimbursements).
- If the salary exceeds ₹4,00,000, such perquisites become fully taxable.
Rule 3D – Gross Total Income Threshold for Perquisites
Under Rule 3D, the prescribed limit of Gross Total Income is ₹8,00,000 for exemptions available under Section 17(2) Proviso (vi).
✅ Effect
- Employees with Gross Total Income up to ₹8,00,000 can claim specified perquisite exemptions, such as concessional loans or other benefits notified under the proviso.
- If the Gross Total Income exceeds ₹8,00,000, these perquisites will also become fully taxable.
Impact of Rules 3C and 3D
The insertion of these rules creates a two-tier eligibility system for perquisite exemptions:
| Income Threshold | Applicability | Impact |
|---|---|---|
| Salary ≤ ₹4,00,000 | Rule 3C | Exemption available for perquisites like meal vouchers, rent-free accommodation, reimbursements |
| Gross Total Income ≤ ₹8,00,000 | Rule 3D | Exemption available for concessional loans and specified perquisites |
| Above these thresholds | Not eligible | Perquisites fully taxable |
✔ Beneficiaries
- Lower-salaried employees (≤ ₹4 lakh salary)
- Middle-income employees (≤ ₹8 lakh gross total income)
❌ Losers
- Higher-income salaried employees (salary > ₹4 lakh or GTI > ₹8 lakh), as exemptions will not apply.
Practical Implications for Taxpayers (AY 2025–26 Onwards)
- Tax Planning – Employees must evaluate whether their salary/Gross Total Income falls within the limits to plan perquisite claims.
- Payroll Compliance – Employers need to adjust payroll systems to ensure correct TDS on perquisites.
- Higher Tax Burden – Middle and high-salaried individuals may face higher tax liabilities since perquisites become taxable once thresholds are crossed.
Key Takeaways
- Notification 133/2025 has introduced Rule 3C (₹4 lakh salary cap) and Rule 3D (₹8 lakh GTI cap).
- Tax relief on perquisites is now restricted to lower and middle-income groups.
- Salaried individuals above these income limits must account for increased tax liability on perquisites.
- The government’s intent is to target exemptions more effectively toward employees who need them most.
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