The festival of lights brings cheer, and for many, a much-anticipated bonus or gift from their employer. But beware: not all festive perks are tax-free. Failing to report them correctly can attract the attention of the Income Tax Department.
Thank you for reading this post, don't forget to subscribe!Here is a clear guide for employees on the taxability of Diwali bonuses and gifts:
Cash Bonus: Always 100% Taxable
- Tax Status: Fully Taxable
- What it means: Any amount received in cash as a Diwali bonus is treated exactly like your regular monthly salary.
- The Rule: It is added to your total annual income and taxed according to your applicable income tax slab rate.
- Example: If you receive a ₹30,000 cash bonus, the entire amount is taxable. There is no separate tax exemption for cash bonuses.
- Your Action: Ensure your employer accounts for this in your Tax Deducted at Source (TDS), and you must report it correctly in your Income Tax Return (ITR).
Gifts (In-Kind) & Vouchers: The ₹5,000 Exemption Rule
- Tax Status: Tax-Free up to ₹5,000
- What it means: Non-cash gifts from your employer, such as gift vouchers, sweets, gadgets, or apparel, are exempt from tax, provided their total value does not exceed ₹5,000 in a single financial year.
- Gifts Below the Limit (₹5,000 or less): These are entirely tax-free.
- Gifts Above the Limit (Over ₹5,000): If the total value of all non-cash gifts from your employer crosses the ₹5,000 threshold, the entire amount (not just the amount over ₹5,000) becomes taxable. For instance, if you receive gifts worth ₹7,000, the full ₹7,000 is added to your income.
Understanding Your Tax Burden (New Tax Regime)
The tax you pay on your bonus depends on your total income for the year, as it falls under your applicable slab. The government’s new (and now default) tax regime currently follows these slabs:
| Annual Income Range | Tax Rate |
| Up to ₹4 lakh | Tax-Free |
| ₹4 lakh to ₹8 lakh | 5% |
| ₹8 lakh to ₹12 lakh | 10% |
| ₹12 lakh to ₹16 lakh | 15% |
| ₹16 lakh to ₹20 lakh | 20% |
| ₹20 lakh to ₹24 lakh | 25% |
| Above ₹24 lakh | 30% |
Note: The new system also offers a standard deduction, which can help slightly reduce the overall taxable income.
🚨 Essential Takeaway
The responsibility for correctly reporting and paying tax on your Diwali bonus and gifts ultimately lies with you, the employee. Always:
- Report Cash Bonuses: Include all cash bonuses in your total taxable income.
- Monitor Gift Value: Keep track of the total value of all non-cash gifts/vouchers received from your employer throughout the year to check if you cross the ₹5,000 limit.
Would you like me to find some strategies for tax planning to help you minimize the tax impact of your Diwali bonus?
