On August 18, 2025, the Central Board of Direct Taxes (CBDT) under the Department of Revenue, Ministry of Finance, issued an important notification (G.S.R. 555(E)) amending the Income-tax Rules, 1962. Titled the Income-tax (Twenty Second Amendment) Rules, 2025, this change introduces new rules — Rule 3C and Rule 3D — that define monetary thresholds for specific components of salary income under Section 17(2) of the Income-tax Act, 1961.
These rules, effective from the date of publication in the Official Gazette, mark a significant step toward bringing greater clarity and consistency in the treatment of certain perquisites and allowances under the head “Salaries.”
Understanding the Amendments
The amendment inserts two new rules:
Rule 3C: Salary Income Threshold
This rule relates to item (c) of sub-clause (iii) of clause (2) of Section 17.
It prescribes a threshold of ₹4 lakh under the head “Salaries”.
This essentially sets a ceiling for certain components of salary to be considered under taxable income for specific exemptions or inclusions outlined in the Income Tax Act.
Rule 3D: Gross Total Income Threshold
This relates to clause (vi) of the Proviso to clause (2) of section 17.
It prescribes a gross total income limit of ₹8 lakh.
This rule will apply to determine eligibility or taxability of certain perquisites based on the overall gross income of the individual.
Why These Rules Matter
Section 17(2) of the Income-tax Act deals with perquisites — benefits provided by employers in addition to salaries and wages. This includes housing, cars, concessional loans, or other non-cash benefits. Certain perquisites are taxable based on their value and the recipient’s income levels.
The introduction of these prescribed limits through Rules 3C and 3D:
Clarifies taxability for employees receiving specific perquisites.
Helps standardize thresholds for exemption or inclusion, reducing ambiguity for both taxpayers and employers.
May serve as the basis for further rationalization of exemptions or tax treatments in future assessments.
Who Will Be Affected?
Employees in both government and private sectors who receive salary packages with components such as housing or other perks will need to check if these changes impact their taxable income.
Employers and payroll departments will need to adjust their tax calculations and Form 16 disclosures accordingly.
Tax professionals and chartered accountants should note these changes for accurate tax planning and advisory services during FY 2025-26.