Today, as families and friends celebrate Diwali with lights, sweets, and gifts, it’s also important to understand how certain gifts and bonuses can impact taxes. Under the Income Tax Act, 1961, gifts received during Diwali—whether cash, vouchers, or items—may become taxable if they exceed specific limits.

Let’s break down how gift tax rules work and how employees can handle bonus taxation.

Gifts from employers

When employers give Diwali gifts to employees, tax rules differ based on the value and type of gift:

Cash or non-monetary gifts: Gifts, whether in cash, vouchers, or items, are fully taxable as perquisites if their value exceeds ₹5,000.

For instance, if an employer gives a ₹7,000 voucher, the entire amount becomes taxable.

Exemption limit: Employees can receive tax-free gifts up to ₹5,000 from their employer. Anything above this limit is added to the employee’s income and taxed according to their slab rate.

Gifts from relatives

Gifts from relatives are completely tax-free, regardless of their value. This includes cash, jewelry, or any other asset type.

The Income Tax Act exempts these gifts

from taxation, letting family members share Diwali joy without a tax burden.

Gifts from non-relatives

For gifts from friends or non-relatives, taxability depends on the gift’s total value:

Threshold limit: Gifts above ₹50,000 are taxable under “Income from Other Sources.” For instance, if you receive a cash gift of ₹55,000 from a friend, you’ll need to report it in your tax return.

Type of gifts included: This threshold covers cash, jewelry, vouchers, and other assets.

Diwali bonus: Tax implications

Diwali bonuses, unlike gifts, are entirely taxable as salary income.

Employers are required to deduct tax at source under Section 192 of the I-T Act before disbursing the bonus.

Here’s how it works:

Taxable as salary: The entire bonus amount is added to the employee’s annual salary and taxed at their applicable slab rate.

TDS compliance: Employers deduct TDS on the bonus amount, ensuring compliance with withholding tax obligations.