Tax On Diwali Gift: Diwali is considered the biggest festival of the year in India and is celebrated with great pomp. On this festival, people decorate their homes, worship Lakshmi-Ganesh and give gifts to their family, friends and loved ones.
This gift is considered a way to strengthen relationships and share happiness. Apart from this, many companies also give Diwali bonuses or gifts to their employees. This bonus is a recognition of the employees’ work throughout the year and makes them feel that their hard work is being appreciated. Companies also give things like sweets, dry fruits, electronics, or vouchers on this occasion.
Know the rules and methods of protection
However, certain tax rules may also apply to these gifts and bonuses. It is important to know the tax liability of gifts and bonuses so that you do not face any financial surprises later. Certain types of gifts or bonuses may be taxable in India under the Income Tax Act, 1961. Here’s how the tax is determined and how you can minimize it.
Tax on Diwali Bonus
Diwali bonus is considered as a part of the employee’s income, hence it is taxed in the same way as salary. It is added to ‘salary income’ and taxed as per your income tax slab.
Method of prevention:
When adding bonuses to your income, use investment schemes like 80C, 80D or other tax-saving options. These can help you reduce your tax liability.
Tax on cash gifts
If you receive cash gifts on Diwali, it is taxable under certain circumstances. If you receive gifts worth more than Rs 50,000 in the entire year (in the form of cash or apparel), this amount will be treated as “income from other sources” and will be taxable. However, if these gifts are received from close relatives, they are considered tax-free.
Method of prevention:
If you are receiving gifts, ensure it is less than Rs 50,000 or from close relatives to avoid taxes.
Tax on gifts given by the company
Many companies give gifts to their employees on Diwali, such as electronic items, vouchers, or gold coins etc. These gifts are tax-free up to a certain limit, but gifts up to Rs 5,000 are tax-free. If the value of the gifts is more than Rs 5,000, then this amount will be added to the ‘salary income’ and tax will have to be paid as per the income tax slab.
Method of prevention:
If possible, request the company that the value of the gifts should not exceed Rs 5,000 so that it can be kept tax-free.
Tax on gifts in kind (eg, goods or vouchers)
If a person receives gifts in the form of clothing, home decor items, jewellery, etc. and their total value exceeds Rs 50,000, it may be subject to tax.
Method of prevention:
Keep gifts within the limit of Rs 50,000. Consider accepting gifts in the form of vouchers from the company, as vouchers are exempt from tax under certain circumstances.
Gifts in the form of Provident Fund or Gratuity investments
Companies in some cases give bonuses in the form of contribution to the employees’ PF or gratuity. This is a good way to save tax, as these investments are not taxable. While you enjoy gifts and bonuses on Diwali, you can make the most of your festival by adopting these tax saving options.
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