Major Changes in Salary-Related Allowances and Perquisites Under the New Income Tax Act, 2025
12 May 2026Business Services
Changes in allowances
| Type of allowance | As per the Income Tax Act, 1961 (Old) | As per the Income Tax Act, 2025 (New) |
|---|---|---|
| Children education allowance (Max for 2 children) (Not available under New Tax Regime) | INR 100 per month per child | INR 3000 per month per child |
| Children hostel allowance (Max for 2 children) (Not available under New Tax Regime) | INR 300 per month per child | INR 9,000 per month per child |
| House Rent Allowance – cities eligible for 50% criteria (Not available under New Tax Regime) | Mumbai, Delhi, Kolkata and Chennai (4 metros) | New cities added - Ahmedabad, Bengaluru, Hyderabad and Pune. Total 8 cities |
| HRA exemption claims – Annual rent > INR 1,00,000 to family members (Not available under New Tax Regime) | PAN of the landlord required | Disclosure of the relationship with landlord and Aadhaar number required |
What Changed in Motor Car Perquisites?
- Motor car owned or hired by employer – Used partly for official and partly for personal purposes – expenses met or reimbursed by employer.
The taxable value is:
Details As per the Income Tax Act, 1961 (Old) As per the Income Tax Act, 2025 (New) Engine capacity up to 1.6ltrs INR 1,800 per month + INR 900 per month, if chauffeur is provided INR 5,000 per month + INR 3,000 per month if chauffeur is provided Engine capacity above 1.6ltrs INR 2,400 per month + INR 900 per month if chauffeur is provided INR 7,000 per month + INR 3,000 per month if chauffeur is provided - Motor car owned or hired by employer – Motor car owned or hired by the employer – used partly for official and partly for personal purposes, where personal expenses are borne by the employee.
The taxable value is:
Details As per the Income Tax Act, 1961 (Old) As per the Income Tax Act, 2025 (New) Engine capacity up to 1.6ltrs INR 600 per month + INR 900 per month, if chauffeur is provided INR 2,000 per month + INR 3,000 per month if chauffeur is provided Engine capacity above 1.6ltrs INR 900 per month + INR 900 per month if chauffeur is provided INR 3,000 per month + INR 3,000 per month if chauffeur is provided - Motor car owned by employee – Motor car owned by the employee – used partly for official and partly for personal purposes, where expenses are reimbursed by the employer. The taxable value shall be the actual expenditure incurred by the employer, as reduced by the amounts specified below:
Details As per the Income Tax Act, 1961 (Old) As per the Income Tax Act, 2025 (New) Engine capacity up to 1.6ltrs INR 1,800 per month + INR 900 per month, if chauffeur is provided INR 5,000 per month + INR 3,000 per month if chauffeur is provided Engine capacity above 1.6ltrs INR 2,400 per month + INR 900 per month if chauffeur is provided INR 7,000 per month + INR 3,000 per month if chauffeur is provided - Any other vehicle owned by employee – Used partly for official and partly for personal purposes and expenses met or reimbursed by employer, then the actual value of expenditure incurred by the employer as reduced by amounts provided below:
As per the Income Tax Act, 1961 (Old) As per the Income Tax Act, 2025 (New) INR 900 per month INR 3,000 per month
How Have Other Perquisites Been Revised?
| Type of perquisite | As per the Income Tax Act, 1961 (Old) | As per the Income Tax Act, 2025 (New) |
|---|---|---|
| Threshold limit for exemption on non-monetary perquisites (Specified employee) | Annual salary income of employee up to INR 50,000 | Annual salary income of employee up to INR 400,000 |
| Gifts, vouchers, tokens, provided by an employer – Exemption limit | INR 5,000 per tax year | INR 15,000 per tax year |
| Free food and non-alcoholic beverages provided to employees – Exemption limit | INR 50 per meal | INR 200 per meal |
| Free or concessional education facilities for any member of employee’s household – threshold for valuation | If the cost of education exceeds INR 1,000 per month | If the cost of education exceeds INR 3,000 per month |
| Leave Travel Concession (LTC) – Air travel fare (Not available under New Tax Regime) | Economy fare | Fare admissible for the class to which employee is entitled based on shortest route |
| Leave Travel Concession (LTC) – Other mode of travel (Not available under New Tax Regime) | Air-conditioned first-class rail fare | INR 30 per km |
| Loans granted by employer to employee for medical treatment of specified diseases | No perquisite if loan amount does not exceed INR 20,000 | No perquisite if loan amount does not exceed INR 0.2 million |
| Medical facilities outside India – exemption for cost of travel (patient + 1 attendant) | For employees with Gross Total Income (GTI) of INR 0.2 million or less | For employees with Gross Total Income (GTI) of INR 0.8 million or less |
Conclusion
The increase in various threshold/exemption amounts in the new Income Tax Act, 2025, marks a significant enhancement of salary-related allowance and perquisites limits over the past decade, aimed at increasing real take-home pay, promoting tax-efficient salary structures, and aligning with rising cost of living and global medical expenses. This will help the current tax system catch up with inflation, global costs, and modern employment trends.Recent Insights
