Diwali bonus and gifts: Will cash rewards and vouchers increase your income tax?

New Delhi: The occasion of Diwali is always awaited even in the world of corporate. The employees get Diwali gifts and bonuses in forms of cash and vouchers. One thing employees must be aware of is the tax implication that accompany these gifts.

The tax liability often depends on the form of the gift, whether it is received in as cash or vouchers and hampers. Diwali bonus that an employee receives during the festivity is added to the total annual income of the employee. As a result the taxable income rises for the financial year.

The provisions under the Income Tax rules provide no exemptions on bonus credited to the employee’s account which is treated as salary, and thus carry tax liability. The employee has to pay tax on the bonus added to salary under the applicable income tax slab.

The employee would incur the tax implication based on the chosen tax regime. For employees getting their salaries under the old tax regime, the deduction of Rs 50,000 may apply. Moreover, based on the nature of the Diwali gift, eligible deductions under the old tax regime may be applicable.

On the other hand, the employees whose salaries are calculated under the new tax regime may claim standard deduction of Rs 75,000. Since, under the new tax regime, resident individuals with taxable income up to Rs 12 lakh are eligible for a rebate under Section 156, salaried employees can have zero tax liability on salary income of up to Rs 12.75 lakh, including the standard deduction, subject to applicable conditions. The employees whose taxable income, including the bonus, exceeds this threshold may have to pay tax under the applicable tax slab, subject to marginal relief.

However, even if the bonus pushes the employee into the higher slab, only that portion of taxable income which falls within the higher slab would be taxed at the applicable rate.

Apart from the income tax, the Diwali bonus also impacts the Tax Deducted at Source (TDS) calculated under Section 392 of the Income Tax Act. TDS is deducted based on the projected annual salary. When an employee receives bonus, the annual income rises and thus the TDS amount changes accordingly. The employer may deduct the amount from the bonus payout or adjust it into the subsequent monthly salary for the financial year.

Moreover, Section 17 of the Income-tax Act, 2025 has provisions for perquisites provided by an employer to an employee. Perquisites are benefits or amenities provided in addition to regular salary. Under Rule 15 of the Income-tax Rules, 2026, the value of gifts, vouchers and tokens received from an employer is treated as nil if their aggregate value is below Rs 15,000 during the tax year. If the aggregate value reaches Rs 15,000 or more, the value of the gifts becomes taxable as a perquisite. Cash or gifts and vouchers which can be converted into money such as cheques are fully taxable under the provisions.