Tax Saving Tips: Are Diwali Gifts and Bonuses Taxable? Learn How to Avoid Tax

Income Tax on Diwali Gifts: Did you know that gifts and bonuses received during Diwali could be taxable? Under the rules of the Income Tax Act, you might be required to pay tax on these gifts and bonuses.

Income Tax Implications on Your Diwali Gifts: It is essential to understand the tax implications on gifts and bonuses received during Diwali.

As Diwali approaches, it’s common for people to exchange gifts. The value of a gift often depends on the depth of the relationship between the giver and the receiver. Employees also look forward to receiving gifts and bonuses from their companies. However, many may not know that these gifts and bonuses can be taxable under the Income Tax Act. Therefore, under the income tax rules, you might have to pay taxes on these gifts and bonuses.

Let’s explore the tax implications of Diwali gifts and bonuses and how you can save on taxes.

Tax on Diwali Gifts and Bonuses

According to the Income Tax Act, any gift or bonus received from your employer is considered a perquisite and is treated as part of your salary, making it taxable. The tax on your bonus will be determined based on your overall tax slab.

However, certain gifts and bonuses are not taxable:

• Gifts up to ₹5,000: Gifts from your employer valued up to ₹5,000 are exempt from tax.
• Gifts from non-relatives: Gifts received from non-relatives, such as customers or suppliers, are generally not taxable, regardless of their value.

Ways to Save Tax on Diwali Gifts and Bonuses

If you want to avoid paying tax on your Diwali gifts and bonuses, here are some tips to consider:

• Claim Exemption: If the value of your Diwali gift is up to ₹5,000, you can claim an exemption by presenting relevant documents related to the gift.
• Structure Expensive Gifts Smartly: If your company plans to give you a gift worth more than ₹5,000, you can request them to structure it in such a way that avoids tax. For example, they could provide a gift voucher up to ₹5,000 and give the rest of the amount as a bonus.
• Choose Non-Cash Options: Opting for non-cash items like gift vouchers, gold coins, or appliances may be a better choice since they are generally less likely to attract taxes compared to cash bonuses.
• Donate to Charity: If your company allows you to donate a portion of your Diwali bonus to a recognized charity, you can claim tax deductions on the donated amount.

Other Important Points to Remember

• Source of the Gift: Gifts received from friends or acquaintances (non-relatives) are usually not taxed, regardless of their value. However, gifts from relatives could be taxable if their value exceeds a certain threshold.

• Tax on Specific Gifts: Some gifts, such as cash or jewelry, are more likely to be taxed compared to other types of gifts.

By following these tips and being mindful of the tax rules, you can enjoy your Diwali gifts and bonuses while minimizing the tax burden.