Is Diwali Bonus Taxable? Here’s What Employees Should Know

As the festival of lights draws near, employees across the country are eagerly awaiting their Diwali bonuses. While companies traditionally reward staff with cash, sweets, gift vouchers, clothes, or gadgets, many are unaware that these festive perks can carry a tax liability.

Contrary to popular belief, not all Diwali gifts are tax-free, and failing to report them correctly could attract the attention of the Income Tax Department.

Are Diwali Gifts Taxable?

Gifts from employers are generally exempt from taxation if their value does not exceed Rs 5,000. This means that a box of sweets, a small gadget, or festive apparel provided within this limit is tax-free. However, gifts exceeding Rs 5,000, such as high-end electronics or jewellery, are fully taxable. The total value of such gifts is added to the employee’s income and taxed at the applicable rate, just like regular salary income.

Diwali Cash Bonuses

Unlike small gifts, cash bonuses are treated as part of an employee’s salary and are fully taxable. For instance, a Diwali bonus of Rs 30,000 will be added to the annual income and taxed according to the individual’s income tax slab. There is no separate exemption for such bonuses, making it crucial for employees to report them in their Income Tax Return (ITR) to avoid notices from the tax authorities.

Understanding Tax Regime

Under the new tax system, which is now the default:

• Up to Rs 4 lakh annual income: Tax-free
• Rs 4 lakh-Rs 8 lakh annual income: 5% tax
• Rs 8 lakh-Rs 12 lakh annual income: 10% tax
• Rs 12 lakh-Rs 16 lakh annual income: 15% tax
• Rs 16 lakh-Rs 20 lakh annual income: 20% tax
• Rs 20 lakh-Rs 24 lakh annual income: 25% tax
• Above Rs 24 lakh annual income: 30% tax

The new system also allows a deduction of Rs 60,000 for income up to Rs 12 lakh, which can slightly reduce the overall tax burden.

Employees should ensure that all cash bonuses are included in their income for tax purposes. Small gifts under Rs 5,000 remain exempt, but anything above this threshold is taxable.