Diwali Gifts and Bonus to Employees in 2026: The New Rs 15,000 Tax-Free Gift Limit, TDS on Cash Bonus and GST on Gifts
From 2026-27, non-cash gifts to an employee are tax-free up to Rs 15,000 a year, three times the old limit, but a cash bonus is still fully taxed.
Every Diwali, a Rajkot manufacturer gives each of his 60 workers a cash bonus, a box of sweets and a silver coin, and his senior staff a gift voucher. The accountant usually treats it all as one expense and moves on. This year the rules around it have changed, and the difference between a voucher and cash now matters more than it used to.
This article explains how Diwali gifts and bonus to employees are taxed in 2026, what the employer must do for TDS, how GST treats gifts, and the separate rules for gifts to customers and dealers.
Short answer: Under the Income-tax Rules, 2026, gifts in kind and gift vouchers given by an employer to an employee are tax-free if their total value in the year is within Rs 15,000, up from Rs 5,000. Above that limit, the whole value becomes a taxable perquisite. Cash gifts and bonus are always taxable as salary, and the employer must deduct TDS on them. For GST, gifts to an employee up to Rs 50,000 a year are not treated as a supply, but input tax credit on goods bought as gifts is not available. Gifts to dealers, customers and professionals above Rs 20,000 in a year attract TDS at 10%.
What changed for 2026-27?
- Limit raised: the tax-free limit for gifts and vouchers to employees is now Rs 15,000 per employee per year, three times the earlier Rs 5,000.
- Non-cash only: it covers gifts in kind, gift vouchers, gift cards and similar tokens. Cash is not covered.
- Yearly total: the limit applies to all such gifts in the tax year together, not to each occasion. A Diwali voucher, a birthday gift and an award all count.
- All or nothing: if the total crosses Rs 15,000, the entire value becomes taxable, not just the excess.
How is a cash bonus taxed?
A Diwali bonus or cash gift is part of salary, taxed at the employee's slab rate under whichever tax regime they have chosen. The employer must include it in the salary for the month it is paid and deduct TDS on the revised estimate of annual salary. Many employers forget this, and the shortfall appears as a demand on the employer and a surprise for the employee at the time of filing the return.
Statutory bonus under the labour codes, where it applies, is also taxable salary. We explained the wider payroll changes in what the new labour codes mean for Gujarat employers.
Some examples
- Worker A: sweets worth Rs 800 and a silver coin worth Rs 4,500 at Diwali, and a Rs 5,000 voucher on her work anniversary. Total Rs 10,300, within Rs 15,000, so nothing is taxable.
- Manager B: a Rs 12,000 voucher at Diwali and a gadget worth Rs 6,000 as an award. Total Rs 18,000, above the limit, so the full Rs 18,000 is a taxable perquisite.
- Worker C: Rs 5,000 in cash as a Diwali gift. Fully taxable as salary, whatever the amount.
The lesson for employers who want the gift to reach employees tax-free: give it in kind or as a voucher, and keep the yearly total for each employee within Rs 15,000.
What must the employer do for TDS and reporting?
- Keep a register of gifts and vouchers given to each employee through the year, with values.
- Treat cash bonus and cash gifts as salary in the month of payment, and deduct TDS.
- Add the full value of non-cash gifts to the employee's salary as a perquisite once the yearly total crosses Rs 15,000.
- Show the salary, perquisites and TDS correctly in the quarterly TDS return and in Form 130, which has replaced Form 16.
How does GST treat gifts to employees?
- Up to Rs 50,000 a year per employee: gifts by an employer to an employee are not treated as a supply, so no GST is payable on the gift itself.
- Input tax credit: credit on goods purchased to be given as gifts is blocked. Do not claim it on sweets, coins, gadgets or hampers bought for gifting, and reverse it if it was claimed.
- Above Rs 50,000: a gift beyond this value to a related person, such as an employee, can be treated as a supply, which needs specific advice.
What about gifts to customers, dealers and professionals?
- TDS: a business giving benefits or gifts worth more than Rs 20,000 in a year to a person in connection with their business or profession must deduct TDS at 10% (the old Section 194R). Diwali gifts to top dealers often cross this. See our detailed note on TDS on gifts and dealer incentives.
- GST: input tax credit on goods given as gifts to customers or dealers is also blocked.
- Income tax deduction: genuine business gifts are usually allowed as a business expense, but keep bills in the business name and a list of recipients.
A Diwali checklist for employers
- Decide the gift policy: vouchers or gifts in kind for the tax-free benefit, and cash only where intended.
- Track each employee's gifts for the full year against the Rs 15,000 limit.
- Run cash bonus through payroll with TDS in the month of payment.
- Buy gifts on proper bills in the business name, and do not claim GST credit on them.
- List gifts to dealers and customers, and deduct TDS where any one person crosses Rs 20,000 in the year.
- Keep the gift register ready for the tax audit.
What we do for you
- Design a gift and bonus policy that keeps employee gifts tax-free where possible
- Handle payroll, TDS on salary and perquisites, and quarterly TDS returns
- Issue Form 130 to employees with perquisites shown correctly
- Review GST credit on festival purchases and reverse blocked credit
- Deduct and report TDS on gifts to dealers, customers and professionals
- Prepare the records your tax auditor will ask for
Gadhia Associate has been in practice since 2007 and has handled work for over 7,000 clients across Saurashtra and Gujarat, with a 5.0 Google rating from more than 100 reviews. Manufacturers, traders and service businesses from Junagadh, Rajkot, Jetpur, Veraval, Porbandar and Amreli come to our Junagadh office, where same-day appointments are available. Payroll and TDS work can equally be handled online for employers anywhere in India. Fixed-fee and monthly plans are available.
Planning Diwali gifts and bonus for your staff? Talk to us before you pay, not after. Call or WhatsApp +91 82005 28355. The first consultation is free.
Frequently asked questions
How much gift from an employer is tax-free in 2026?
Gifts in kind and vouchers with a total value within Rs 15,000 in the tax year are tax-free, from tax year 2026-27. The earlier limit was Rs 5,000.
Is a cash Diwali gift from the employer taxable?
Yes. Cash gifts and bonus are fully taxable as salary, and the employer must deduct TDS.
What happens if gifts cross Rs 15,000 in a year?
The whole value becomes a taxable perquisite, not just the amount above Rs 15,000.
Can the employer claim GST credit on Diwali gifts?
No. Input tax credit on goods given as gifts is blocked. Gifts to an employee up to Rs 50,000 a year are not treated as a supply.
Is TDS required on Diwali gifts to dealers?
Yes, at 10%, if the total value of gifts and benefits given to that dealer in the year crosses Rs 20,000.
Does the Rs 15,000 limit apply under the new tax regime too?
The limit comes from the rules for valuing perquisites, which apply to salaried employees under both regimes.
Position as of 26 September 2026. The Income-tax Act, 2025 and the Income-tax Rules, 2026 apply from 1 April 2026, and older section numbers are mentioned because that is how people still search for them. Take advice on your own payroll and gifting plans.
