Diwali bonus: Will your festive payout be taxed? What salaried employees need to know
It's finally the festive season and many salaried employees look forward to receiving gifts and bonuses from their employers, especially for Diwali. This additional payout can help individuals cover their shopping expenses for the occasion or give their savings a boost.
However, before you plan how to spend the extra money, it is important to understand its tax implications. Gifts (both cash and non-cash) are only exempt from tax when received during marriages or from specified family members.
As per the income tax law, a cash bonus received from an employer is treated as part of salary income and taxed at the employee's applicable tax slab rate.
For example, if an employee gets a Diwali cash bonus of ₹20,000, the amount is added to their salary income for the relevant financial year and taxed accordingly. The additional payout could increase the employee’s overall tax liability, depending on their total taxable income and applicable tax slab.
Perquisite rules say that if the aggregate value of gifts in kind, such as electronics, is up to ₹5,000, they are considered tax-free, according to Siddharth Maurya, Founder and Managing Director at Vibhvangal Anukulara.
For example, if an employee receives an air fryer worth ₹5,000 from their employer, then it would be tax-exempt. However, if the same person receives a television or smartphone worth ₹15,000, the gift would be taxable, as its value exceeds the ₹5,000 exemption limit.
“The ₹5,000 limit is applicable for qualifying gifts in kind and the limit is on an aggregate annual basis, that is, it is not a separate exemption for each gift or festival. Cash and cash equivalents are fully taxable as salary and employers are required to include the value of taxable gifts in their payroll and perquisite reporting,” the expert noted.
A cash Diwali bonus should be reported as salary in income tax returns (ITR) and not as a separate tax-exempt festive payment, Maurya said, adding that employees must check their Form 16, pay slips and the tax information available on the tax department's portal to see if the bonus is shown as salary.
If you receive a cash bonus on November 1, 2026, you must report it in your return for AY 2027-28, which covers income earned during FY 2026-27.
“Employers usually calculate and deduct TDS (tax deducted at source) on salary and bonuses under the applicable salary withholding provisions and make the payment to the employees. Therefore, the additional payment may increase the employee’s estimated tax liability and consequently affect the TDS deducted during the relevant payroll period,” he noted.
Employees can claim tax credit for the TDS actually deducted and paid against their PAN, subject to verification of the relevant tax records. They must reconcile the amount of TDS with the forms and tax records before they file their ITR.
TDS is an advance collection of income tax. However, in certain cases, TDS may be in excess of the employee’s total income tax liability, in which case a refund may be claimed. In other cases, the TDS may be less than the employee’s total income tax liability and the employee will be required to pay the balance tax.
Eshita Gain is a digital journalist at Mint, where she joined in May 2025. She writes on corporate developments, personal finance, markets, and business trends, with a focus on delivering timely and relevant stories to a broad audience. <br><br> While her core beat lies in business and finance, she is not confined to a single niche and frequently explores stories across domains, including international relations and policy developments. <br><br> She holds a postgraduate diploma in business and financial journalism by Bloomberg from the Asian College of Journalism (ACJ), Chennai. During her time there, she received rigorous training in tracking financial data, interpreting corporate filings, and reporting on business developments. She has pursued her graduation from St. Joseph’s University, Bengaluru in a multi-disciplinary course. Her majors included Journalism, International Relations, peace and conflict studies. <br><br> Eshita has previously worked in digital marketing, which enables her to write SEO friendly copies that are clear and engaging. <br><br> Her primary interest lies in breaking down complex subjects and writing clear, accessible copies that inform readers. She aims to bridge the gap between technical financial language and everyday understanding. Outside the newsroom, Eshita enjoys reading non-fiction, and exploring new places, constantly seeking fresh perspectives and stories beyond headlines.
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