Diwali Bonus: As Diwali approaches, a question inevitably comes to mind for employees: how much bonus will they receive from their company this time? Some companies offer cash bonuses, while others provide gifts such as sweets, clothing, electronics, or gift vouchers to their employees. But did you know that these Diwali bonuses and gifts are taxable? During the Diwali festive season, people make large purchases of gold, clothing, electronics, and gifts; however, these personal expenses are generally not tax-deductible.

In India, personal festive purchases, such as clothes, sweets, and decorations, are considered personal expenses and are therefore taxable. However, the government does offer tax exemptions on certain gift items when given in cash, check, or draft.

According to Section 56 of the Income Tax Act, gifts received from spouses, siblings, in-laws, etc., are exempt from tax. However, if cash or gifts received from outside the family exceed ₹50,000 in a financial year, the entire amount is considered taxable. This rule applies to both individuals and Hindu Undivided Families.

If the total amount of gifts received during festivals exceeds ₹50,000, the entire amount will be taxable. Separate tax rules have been established for business-related gifts and gifts, where expenses with proper documentation and for business purposes are tax-deductible.

While personal purchases are not tax-exempt, tax can be saved on gifts received from outside the family by staying within the ₹50,000 limit.

Is Diwali Bonus Tax-Free?
If your company has given you a Diwali bonus of ₹30,000, this bonus will be considered part of your salary. It will be taxed at the same rate as your salary. No exemptions are available. If you don’t include this in your income tax return, you may later receive a notice from the Income Tax Department. Therefore, it’s best to include it in your income to avoid any problems later.

The new system provides a tax exemption of ₹60,000 on income up to ₹1.2 million. It’s essential to include the cash bonus in your income because it’s fully taxable.