5 Income Tax rule changes for salaried employees in August 2025: What they mean for you?

Income Tax rule changes for salaried employees in August 2025: There were five major changes in the income tax rules relevant for salaried employees in August 2025. Here's a brief guide on the changes and their impact on salaried taxpayers.

Change 1: Income limit increased for tax-free non-monetary perquisites.

One of the biggest tax changes for salaried employees in August is around the taxation of perquisites. The Central Board of Direct Taxes (CBDT) has increased the income threshold limit for calculating tax-free perquisites for specified employees.

The "specified" employee as per Rule 3 for the valuation of perquisites, includes the following:

• A director-employee
• An employee who owns at least 20% voting power in the company
• Any employee whose income under the head "Salaries", excluding non-monetary perquisites, is above Rs 4 lakh.

The income limit for tax-free perquisite for specified employees has been increased from ₹50,000 to ₹4 lakh. The change has been incorporated by introducing new Rule 3C into the Income Tax Rules, 1962.

With this change, specified non-monetary perquisites like motor cars, personal servants, gas, electricity, water, educational facility, and transport facility, etc., will be taxable if the employee's salary income is above ₹4 lakh. If not, then such specified perquisites will be tax-free.

In other words, employees with up to ₹4 lakh salary will not fall in the category of "specified" employees, and they will not have to pay tax on the specified non-monetary perquisites mentioned above.

However, this provision will not apply to other perquisites such as ESOPs, interest-free/concessional loans, travel, food and beverages, gifts, club membership, etc.

Moreover, it will also not be available for company directors or employees holding a substantial interest (owning at least 20% voting power).

Change 2. Income limit increased for tax-free overseas medical treatment

The CBDT has also increased the income limit for tax-free overseas medical treatment from ₹2 lakh to ₹8 lakh. The change has been incorporated by introducing new Rule 3D into the Income Tax Rules, 1962.

What this means is that the value of the perquisite provided for overseas medical treatment will not be taxed if the employee's gross total income is not more than ₹8 lakh. However, if the salary is over ₹8 lakh, then the amount spent on overseas medical treatment will be taxed.

This change has also come into effect from April 1, 2025 (AY 2026-27).

Change 3: Clarification on Standard Deduction

Change 4: ITAT order on Section 87A rebate

Section 87A rebate on short-term capital gains (STCG) made headlines in August following a recent decision by the Ahmedabad-based Income Tax Appellate Tribunal (ITAT). As per the order, small taxpayers may be eligible for a Section 87A rebate on their STCG income for FY 2024–2025.

Change 5: Income Tax Bill 2025 becomes Income Tax Act 2025

In the lead-up to the implementation of the Income Tax Act, 2025, the Income Tax Department is expected to release explainers and navigation tools. Salaried employees should keep track of such tools and announcements, which we will also cover extensively over the next few months.