Income-tax (22nd Amendment) Rules, 2025

Income-tax (22nd Amendment) Rules, 2025: ₹4 Lakh Salary Limit & ₹8 Lakh Income Cap Explained”

On 19th August 2025, the Ministry of Finance issued a new notification – G.S.R. 555(E) – introducing the Income-tax (Twenty Second Amendment) Rules, 2025. This amendment brings in new income thresholds under section 17 of the Income-tax Act, 1961, which deals with the definition of “salary” and valuation of perquisites.

What Does the Amendment Say?

The amendment has inserted two new rules in the Income-tax Rules, 1962, namely Rule 3C and Rule 3D. These provide clarity on income limits for the purpose of certain salary-related provisions.

Rule 3C – Salary Income Limit

• Refers to: item (c) of sub-clause (iii) of clause (2) of section 17 of the Income-tax Act.
• As per the new rule, the prescribed income under the head “Salaries” shall be ₹4,00,000.

👉 Meaning: If an employee’s salary income exceeds ₹4 lakh, certain benefits or exemptions linked to this provision will not apply.

Rule 3D – Gross Total Income Limit

• Refers to: clause (vi) of the proviso to section 17(2) of the Act.
• The prescribed limit of gross total income is set at ₹8,00,000.

👉 Meaning: If a taxpayer’s gross total income goes beyond ₹8 lakh, they may lose eligibility for specific perquisite-related exemptions under this clause.

Why Are These Rules Important?

These changes are significant because Section 17 of the Income-tax Act broadly deals with salary income, including perquisites, allowances, and retirement benefits. However, in some cases, exemptions or reliefs are available based on income thresholds.

Before this amendment, there was no fixed prescribed limit mentioned in the rules, leading to ambiguity in interpretation. Now, with ₹4 lakh (salary income) and ₹8 lakh (gross total income) clearly defined, the scope of exemptions is much more transparent.

Impact on Employees and Taxpayers

1. For Salaried Employees:
   • Employees earning up to ₹4 lakh in salary can still avail certain exemptions under section 17.
   • Those earning above this limit may not qualify for such reliefs.
2. For Middle-Class Taxpayers:
   • Gross total income up to ₹8 lakh will now be a qualifying factor for certain perquisite-related benefits.
   • This helps ensure that tax relief is targeted at small and middle-income earners rather than higher-income categories.
3. For Employers:
   • HR and payroll departments now have a clear threshold to determine whether an employee qualifies for exemptions.
   • This simplifies Form 16 preparation and reduces chances of errors in TDS deduction.

Example for Better Understanding

• Suppose an employee has a salary income of ₹3.8 lakh and gross total income of ₹7.5 lakh.
  • ✅ They will be eligible for the benefits under the amended rules.
• If another employee has a salary income of ₹6 lakh and gross total income of ₹9 lakh:
  • ❌ They will not qualify, as they exceed both the prescribed limits.

When Does It Apply?

• The rules came into effect from the date of publication in the Official Gazette, i.e., 19th August 2025.
• Practically, this means they will be applicable for Financial Year 2025–26 (Assessment Year 2026–27) onwards.

FAQs on Income-tax (Twenty Second Amendment) Rules, 2025

Q1. What is the salary income limit introduced by Rule 3C?
Ans: The salary income limit has been fixed at ₹4,00,000.

Q2. What is the gross total income limit introduced by Rule 3D?
Ans: The gross total income limit has been set at ₹8,00,000.

Q3. From which year will this amendment be effective?
Ans: It applies from 19th August 2025, i.e., for FY 2025-26 (AY 2026-27) onwards.

Q4. Who benefits most from these rules?
Ans: Small and middle-income salaried taxpayers earning up to ₹8 lakh will benefit the most.

Q5. Why were these limits introduced?
Ans: To provide clarity in tax compliance and ensure that exemptions under section 17 are available only to those in the lower and middle-income brackets.

Conclusion

The Income-tax (Twenty Second Amendment) Rules, 2025 mark an important step in clarifying salary and income thresholds under section 17 of the Income-tax Act. By introducing ₹4 lakh as the salary income limit and ₹8 lakh as the gross total income limit, the government aims to streamline compliance and target tax relief to those who need it most.

For employees, this means a clearer understanding of their eligibility for exemptions, and for employers, this simplifies TDS and reporting obligations.

Notification

Also Read: New Income-tax Bill 2025 Navigator

Also Read:

1. Recommendations of the 55th Meeting of the GST Council
2. Changes in GST and Income Tax during the Financial Year 2024-25
3. TDS and TCS provisions applicable from April 1, 2025
4. Rationalizing TDS: A Deep Dive into Budget 2025’s Proposals

Go To Memorandum

Go To Finance Bill 2025

Read More on Union Budget 2025