Tax On Diwali Gift: Do You Have to Pay Tax on Diwali Gifts or Bonuses?

Tax On Diwali Gift: Do you pay tax on gifts received during Diwali, and if so, what are the applicable rules?

In India, Diwali is considered the biggest festival of the year and is celebrated with great pomp. During this festival, people decorate their homes, worship Lakshmi-Ganesh, and give gifts to their family, friends, and loved ones. These gifts are considered a way to strengthen relationships and spread joy. Additionally, many companies give their employees Diwali bonuses or gifts. This bonus is a recognition of the employee’s hard work throughout the year and makes them feel appreciated. Companies often give sweets, dry fruits, electronics, or vouchers as gifts.

Rules

However, some tax rules apply to these gifts and bonuses. It’s essential to know the tax implications of gifts and bonuses to avoid any financial surprises later. In India, under the Income-tax Act, of 1961, certain types of gifts or bonuses are taxable. Here’s how tax is determined and how you can minimize it.

On Diwali Bonus

Diwali bonus is considered part of an employee’s income, so it’s taxed similarly to salary. It’s added to ‘Salary Income’ and taxed according to your income tax slab.

When adding the bonus to your income, use investment plans like 80C, 80D, or other tax-saving options. These can help reduce your tax liability.

On Cash Gifts

If you receive cash gifts during Diwali, they may be taxable under certain conditions. If you receive gifts worth more than Rs 50,000 in a year (in cash or kind), it’s considered ‘Income from Other Sources’ and is taxable. However, if these gifts are from close relatives, they’re tax-free.

If you receive gifts, ensure they’re below Rs 50,000 or from close relatives to avoid tax.

On Gifts from Companies

Many companies give their employees gifts during Diwali, such as electronic items, vouchers, or gold coins. These gifts are tax-free up to Rs 5,000. If the gift value exceeds Rs 5,000, it’s added to ‘Salary Income’ and taxed according to your income tax slab.

If possible, request your company to keep the gift value below Rs 5,000 to avoid tax.

If you receive gifts in kind, such as furniture, household items, jewelry, etc., and their total value exceeds Rs 50,000, they may be taxable.

Keep the total value of gifts in kind below Rs 50,000. Consider vouchers as gifts, as they may not be taxable under certain conditions.

Provident Fund or Gratuity Investment as Gifts

Some companies contribute to their employees’ provident fund or give gratuity as a bonus. This is a great way to save tax, as these investments are tax-free. By taking advantage of these tax-saving options, you can enjoy your festival more.