Draft Income-tax Rules 2026: Analysis of Rule 17 Salary Thresholds and Rule 18 Medical Perquisite Exemptions

The central government has proposed significant clarifications within the framework of the Draft Income-tax Rules, 2026. Among these proposals, Rule 17 and Rule 18 stand out as critical provisions governing the valuation of income under the head "Salaries" and the specific exemptions available for medical treatment perquisites. These rules aim to standardize the monetary limits applicable to profits in lieu of salary and establish rigorous standards for hospitals seeking approval to provide tax-exempt medical treatment to an assessee.

The following analysis provides a comprehensive breakdown of these draft rules, detailing the infrastructure, staffing, and operational mandates required for healthcare institutions, as well as the specific ailments eligible for tax relief under Section 17(2)(b)(ii) of the Income Tax Act 1961.

Rule 17: Determination of Salary Income for Specific Purposes

The draft regulations introduce a definitive monetary threshold regarding the calculation of income under the head "Salaries" for specific statutory provisions.

The Monetary Limit

Under Rule 17 of the Draft Income-tax Rules, 2026, the prescribed income under the head "Salaries" for the purposes of Section 17(1)(c)(ii) of the Act is set at Rs. 4,00,000 (Four Lakhs Rupees).

This provision is essential for determining the applicability of certain tax clauses where the quantum of salary income acts as a trigger or a base for calculation. By fixing this amount at Rs. 4,00,000, the legislation provides clarity for the assessee regarding the computation of profits in lieu of salary as defined under the Act.

Rule 18: Medical Perquisite Exemption and Hospital Approval

Rule 18 serves as a comprehensive guideline for the implementation of Section 17(2)(b)(ii). This section deals with the exemption of medical benefits from being treated as a taxable perquisite in the hands of the assessee. The rule outlines the procedure for the Principal Chief Commissioner or Chief Commissioner to grant approval to hospitals, ensuring that only facilities meeting specific quality and infrastructure standards qualify for this tax benefit.

Approval Criteria for Modern Medicine Hospitals

For hospitals not falling under the Indian system of medicine or homeopathy, the approval process is stringent. The Principal Chief Commissioner or Chief Commissioner must verify that the hospital is registered with the local authority and strictly adheres to the following infrastructure and operational mandates:

1. Structural and Municipal Compliance

  • Legal Compliance: The hospital building must fully comply with the municipal bye-laws currently in force.
  • Environmental Standards: Patient rooms are required to be well-ventilated, adequately lighted, and maintained in a clean, hygienic condition.
  • Capacity: The facility must provide at least ten iron spring beds for patients.