Diwali is a time when many salaried employees receive festive bonuses and gifts from their employers. The additional money can help cover festival shopping expenses or add to personal savings. However, employees should understand the income tax rules before deciding how to use these benefits.
Under income tax rules, cash bonuses received from employers are generally taxable as salary income. Gifts may qualify for an exemption within the prescribed limit, subject to the applicable conditions. Gifts received from specified relatives and gifts received on marriage are governed by separate tax provisions.
How Is a Diwali Cash Bonus Taxed?
A cash bonus paid by an employer during Diwali is treated as part of the employee’s salary and taxed according to the applicable income tax slab.
For example, if an employee receives a Diwali bonus of ₹20,000, the amount is added to their salary income for the relevant financial year. The additional income may increase the employee’s overall tax liability, depending on their total taxable income and applicable tax regime.
Therefore, employees should account for their festive bonus when estimating their annual tax liability.
When Are Gifts from Employers Tax-Free?
Gifts received from employers may receive tax relief depending on their value and form. According to Siddharth Maurya, Founder and Managing Director at Vibhvangal Anukulara, qualifying gifts in kind with an aggregate annual value of up to ₹5,000 are generally exempt from tax under the applicable perquisite rules.
For instance, an employee receiving an air fryer worth ₹5,000 may qualify for the exemption. However, if the employee receives a television or smartphone worth ₹15,000, the gift’s value exceeds the prescribed limit and may become taxable under the applicable rules.
Maurya explained that the ₹5,000 threshold applies to the aggregate value of qualifying gifts in kind during the financial year, rather than separately to each gift or festival. Cash payments and cash equivalents received from employers are generally fully taxable as salary income.
Employers must account for taxable gifts in their payroll records and report them under the applicable perquisite provisions.
How to Report a Diwali Bonus in Your ITR
Employees must report a cash Diwali bonus as salary income in their Income Tax Return (ITR). It should not be treated as a separate tax-free festive payment.
Maurya advises employees to check their Form 16, salary slips and the information available through the Income Tax Department’s portal to ensure that the bonus has been correctly included in their salary records.
For example, a cash bonus received on November 1, 2026, falls within the financial year 2026–27. It must therefore be reported in the ITR for Assessment Year (AY) 2027–28.
How Does a Diwali Bonus Affect TDS and Tax Refunds?
Employers generally calculate and deduct Tax Deducted at Source (TDS) on salary, including taxable bonuses, under the applicable provisions. Receiving an additional payment may affect the amount of tax deducted from an employee’s salary during the relevant payroll period.
Employees can claim credit for TDS actually deducted and deposited against their PAN, subject to verification of the relevant tax records. Before filing their ITR, they should reconcile the TDS figures in their Form 16 and other available tax statements.
TDS is an advance payment of income tax. If the total tax deducted exceeds the employee’s final tax liability, the employee may claim a refund. If the amount deducted is insufficient to cover the total tax payable, the remaining amount must be paid in accordance with the applicable rules.
Disclaimer: This article is intended for general informational purposes only and should not be considered tax or financial advice. Tax treatment depends on the applicable income tax provisions and the individual’s circumstances. Employees should refer to official Income Tax Department guidance or consult a qualified tax professional before filing their returns.