Higher Tax-Free Benefits for Salaried Employees in 2025: All You Need to Know

Introduction 

The Finance Act 2025 has introduced significant changes to the tax landscape for salaried employees across India. Among the key changes, enhanced perquisite exemptions and higher tax allowances are the highlighted measures that directly impact how employee benefits are structured and taxed.

These changes align with growing tax benefits for salaried employees, expectations around additional benefits and compensation transparency. Now, modern professionals can negotiate better compensation and comprehensive benefit packages over just a base salary increase.

The update also allows SMEs and startups to attract and retain talent by offering competitive compensation packages without increasing their payroll cost.

In this blog, we cover the new provisions, explain their implications, and provide practical insights for both employees and employers on salary perks in India under the latest income tax rules 2025.

What Do You Mean by Perquisite (Perks) in Salary?

One of the most talked about changes in the Finance Act 2025 is the raised perquisite exemption that’s beneficial for the salaried employees in India.

But first, it is important to understand what exactly perquisites (perks) are.

In simple words, perquisites in salary refer to non-monetary benefits beyond base salary provided by employers to the employees. 

Common items that come under perquisites are meal benefits, transportation perks, accommodation benefits, leave travel allowance (LTA), and modern workplace perks.

What Has Changed for Salaried Employees in the Finance Act 2025?

The government has made changes to the limits running for decades and enhanced key exemptions. Two highlighted changes include:

1. General Tax-Free Perquisite Limit Raised

• Old Limit: ₹50,000
  
• New Limit: ₹4,00,000
  
• Applicable From: FY 2025-26 (AY 2026-27)
  
• Coverage: Benefits under Section 17(2)(iii) of the Income Tax Act, including non-monetary perks such as company car, rent-free accommodation, concessional loans, and other salary perks in India.
  
• Why it is important: The previous ₹50,000 limit was obsolete. By raising it to ₹4 lakh, salary structures will be more relevant, and employers will get more freedom to create and structure competitive CTCs and more space to offer tax-free benefits in 2025.

2. Exemption for Overseas Medical Treatment Enhanced

• Old Limit: ₹2,00,000
  
• New Limit: ₹8,00,000
  
• Provision: Section 17(2), Proviso – Clause (vi)
  
• Coverage: Employer-funded medical treatment abroad for employees or their families, including travel and accommodation of one attendant, subject to valid documentation.
  
• Who benefits most: Employees and their families who need to seek medical care in foreign countries (such as transplants or cancer treatment) will have a higher tax-free limit, i.e, ₹8 lakh now.

When will the new perquisite exemptions apply?

These exemptions will take effect from the financial year 2025-26 onwards, providing employees and employers sufficient time to understand how to incorporate them into salary package structuring and benefit from them.

How Do Higher Tax-Free Benefits Impact Your Salary?

When the Finance Act 2025 raised the general exemption limit on tax-free perquisites to ₹4,00,000, it directly increased the percentage of your salary that can be made tax-free.

Previously, only a small portion of perks such as meal vouchers, company cars, concessional loans, housing allowances and leave travel allowances (LTAs) could be claimed as tax-free. Anything above ₹50,000 was to be subtracted from your taxable income, thereby giving you less take-home pay.

With this increased exemption limit, a significantly higher percentage of such salary perks in India can be made tax-free to employees in the form of allowances.

How do perquisite exemptions affect take-home salary?

• A higher share of salary perks in India (like housing allowance, meal vouchers, LTA, or company car) can now be structured as tax-free.
  
• Employees enjoy more non-cash benefits without reducing take-home pay because of improved employee benefits taxation.
  
• Employers can create better salary package structuring, leading to more savings even without increasing basic salary.

Who Can Take Advantage of These New Tax-Free Perks?

Now, these changes in the Finance Act 2025 cover a huge area of employees. It is important to understand to be able to save more through new tax-free perquisites.

Categories eligible for higher perquisites:

• Salaried employees working across both private and public sectors.

• The employees with frequent pay margins in India, such as housing allowance and leave travel allowance (LTA)

• Professionals in startups, small and medium enterprises, and corporations

Industries and sectors to benefit:

• Institutions with IT and technology enterprises

• Industry (the manufacturing industry and the service industry)

• Start-ups and small and medium-sized enterprises that provide flexible employee benefits in relation to taxation

Smaller organisations like SMEs are now integrating SME employee perks and corporate employee benefits in India to make their business more competitive. Thus, regardless of whether you work in a big company or a small one, you can maximise by structuring your salaried employee taxes to take advantage of these salaried employee tax-saving opportunities.

How Can Employers Use These Exemptions to Attract & Retain Talent?

From the point of view of employers, the updated perquisite exemptions are a great opportunity for HR tax planning. By providing greater tax-exempt benefits to workers, companies would be able to:

• Competitive package of remuneration: India can add more remuneration packages that will make positions even more attractive without requiring the expenditure of additional sums of money.

• Employee Retention: Non-monetary benefits such as tax exemption for meal vouchers, company car allowance, and housing allowance tax exemption enhance job satisfaction.

• Minimise taxation: Companies can optimise salary packages through the utilisation of salary restructuring Indian techniques to save on taxation and maximise employee benefits.

Effective communication of employee retention through perks strategies is important, especially to the HR and finance teams. A definitive statement of the perquisites meaning in salary that are currently more valuable according to new changes of income tax updates 2025 provides certainty to employees that they can be of benefit in the course of their work with the company.

Should You Consult a Tax Expert Accountant in India for Guidance?

Even though the Finance Act 2025 creates transparent guidelines, the question arises: Should I hire a tax expert accountant in India? But the practical application of the tax-free advantages of 2025 is complicated.

Here’s why one should consult a tax expert accountant in India:

• Ensure adherence to the rules of income tax 2025.

• Minimise tax filing mistakes and ultimately avoid penalties.

• Restructure compensation plans to maximise tax savings.
  

An experienced accountant can help employees minimise taxable income, introduce salary restructuring in India, and optimise their salary package with a minimal degree of risk. This proactive tax strategy will give you the advantage of a higher take-home salary with compliant strategies.

Practical Tax-Saving Tips for Salaried Employees

• Review your existing salary structure: Find out the perks that become taxable and those that are now eligible to be claimed under new exemptions.

• Plan perquisites smartly: Give preference to tax-exempt perquisites such as meal vouchers, housing allowances, and leave travel allowance (LTA).

• Coordinate with HR: Make sure that your payroll covers the new exemption limits to benefit corporate employees in India.

That is why it is always recommended to seek advice from a tax expert accountant who will help maximise tax savings for salaried employees under these new income tax changes 2025.

Conclusion

The Finance Act 2025 brings a significant change in the lives of salaried people to the need for a Financial institution in India. Directly increasing perquisite exemptions and tax benefits for salaried employees’ allowances increases take-home pay and makes employee compensation much more relevant to current standards of living. 

Whether it is a meal voucher, housing allowance, or increased limits on medical treatment outside the country, these changes provide the employees with an opportunity to enjoy more savings without increasing their base pay.

The key lies in the understanding of proactive tax planning. Strategically structuring your salary could maximise benefits. Even employers can use such changes to create competitive packages that will enhance retention and attraction of top talent.

And if there’s confusion about how to utilise these provisions most optimally, you must get professional advice. A qualified Chartered Accountant, specialising in taxation in India, like Dr. CA Sharad Kohli, can advise you on how to minimise your salary package, maximise the ability to reduce your taxable income, and ultimately increase your take-home income under the new tax regime.

Frequently Asked Questions (FAQs)

Q1. What are perquisites in salary taxation?
Perquisites are non-cash benefits, such as housing, transportation, and meal vouchers, provided by employers.

Q2. Are the new tax-free benefits automatically applied to all employees?
No, it depends on how your employer structures your salary package.

Q3. Do higher perquisite exemptions reduce overall tax liability?
Yes, they reduce taxable income, which means you pay less in taxes.

Q4. Do I need a Tax Expert Accountant in India to claim these benefits?
Not mandatory, but highly recommended to ensure correct filing and maximum savings.

Q5. When do the new exemptions take effect?
From the assessment year following the Finance Act 2025 (AY 2026–27).

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