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Diwali Bonus and Gifts: What’s Tax-Free and What’s Not—Know the Income Tax Rules Before You Celebrate

With Diwali around the corner, employees across the country are receiving festive bonuses and gifts from their employers. While this brings cheer and celebration, tax experts caution that not all Diwali bonuses or gifts are tax-free. Failing to report these benefits properly could even invite a notice from the Income Tax Department.

Let’s understand how the Income Tax Act treats festive bonuses, cash rewards, and gifts received during Diwali.

Gifts Up to ₹5,000 Are Tax-Free

According to income tax experts, if an employee receives a gift from their employer with a total value not exceeding ₹5,000 during a financial year, it is exempt from tax. This exemption covers gifts such as sweets, small gadgets, home décor, or festive apparel—items that are typically modest in value.

However, the exemption is strictly limited to ₹5,000. If the combined value of all gifts received from the employer crosses this threshold, the entire value becomes taxable and is added to the employee’s total income for that year.

Gifts Above ₹5,000 Attract Tax

If you receive gifts worth more than ₹5,000—say, expensive electronics, gold or silver jewellery, or other high-value items—those are taxable as per your income tax slab.

Tax professionals explain that even if you receive multiple small gifts that together exceed ₹5,000, you must add their total value to your taxable income. Failing to do so may lead to scrutiny or a notice from the tax department.

For instance, if your employer gives you a ₹7,000 smartwatch or a gold coin worth ₹10,000 as a Diwali gift, that amount becomes part of your salary income, and you’ll need to pay tax on it accordingly.

Cash Bonus Is Fully Taxable

Cash bonuses given during Diwali are not exempt under any provision of the Income Tax Act. Such payments are treated as part of your salary income and taxed according to your applicable slab rate.

To illustrate, suppose your employer gives you a ₹30,000 Diwali bonus. This amount will be added to your annual income and taxed as per your income slab. There’s no special exemption or relief available for cash bonuses, even if they are given as festive rewards.

Experts emphasize that cash or cheque-based Diwali bonuses must always be declared while filing your income tax return (ITR).

Reporting High-Value Bonuses Is Crucial

If you have received a large bonus—₹1 lakh or more, it’s essential to report it in your ITR for the financial year. Non-disclosure could trigger an income tax notice, especially since such transactions are easily traceable through salary records and bank statements.

The Income Tax Department routinely matches declared income with data from employers (Form 16 and TDS records). Therefore, undeclared bonuses or gifts could be flagged as discrepancies, inviting penalties or additional tax liabilities.

Why You Should Report Even Small Perks

Even though gifts worth less than ₹5,000 are exempt, maintaining transparency helps build a clean tax record. If your employer has already deducted TDS on your bonus or gift, ensure that the amount is correctly reflected in your Form 26AS or Annual Information Statement (AIS).

Ignoring small taxable components may not seem serious, but repeated omissions can lead to compliance issues in future assessments.

Key Takeaways for Employees This Festive Season

• Cash bonuses are fully taxable as salary income.

• Non-cash gifts worth up to ₹5,000 from your employer are tax-free.

• Gifts above ₹5,000 must be added to your total income and taxed accordingly.

• Always report high-value gifts or bonuses in your Income Tax Return (ITR).

• Failure to disclose could result in a tax notice or penalty.

Final Word

Diwali brings prosperity and joy—but a little tax awareness can save you from future trouble. Before you celebrate with your festive bonus, make sure you understand how it impacts your taxable income. Keeping proper records and accurate reporting not only ensures compliance but also helps you plan your finances better for the upcoming year.