Know This Before Spending Your Diwali Bonus – Tax Rules Explained

New Delhi: With Diwali just around the corner, excitement is building in offices across the country. Employees are eagerly looking forward to their Diwali bonuses which often come in the form of cash, sweets, gift vouchers, clothes, or gadgets. But while these festive perks feel like a treat, many are unaware that they could come with a tax liability, turning a joyous bonus into a surprise for your wallet.

Many people assume festive gifts and bonuses are completely tax-free. The truth is, some Diwali perks are taxable, and failing to declare them correctly could draw the attention of the Income Tax Department.

How Diwali Gifts From Employers Are Taxed

Small gifts are usually tax-free: Gifts from employers are exempt from tax if their value does not exceed Rs 5,000. This includes items like sweets, small gadgets, or festive clothes.

Expensive gifts are taxable: Gifts worth more than Rs 5,000, such as high-end electronics or jewellery, are fully taxable.

Tax treatment: The value of taxable gifts is added to your income and taxed at the applicable income tax rate, just like your regular salary.

Diwali Bonuses Are Fully Taxable

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

Know How Income Is Taxed Under The New System

Under the new tax regime, which is now the default for most taxpayers, income is taxed in slabs based on annual earnings:

Up to Rs 4,00,000: No tax

Rs 4,00,001 – Rs 8,00,000: 5% tax

Rs 8,00,001 – Rs 12,00,000: 10% tax

Rs 12,00,001 – Rs 16,00,000: 15% tax

Rs 16,00,001 – Rs 20,00,000: 20% tax

Rs 20,00,001 – Rs 24,00,000: 25% tax

Above Rs 24,00,000: 30% tax

Additionally, the new system allows a deduction of Rs 60,000 for income up to Rs 12 lakh, helping reduce the overall tax liability slightly.