Did you get a Diwali gift from your boss? Know this rule of ₹15,000 tax exemption, else you may have to pay hefty income tax!

Are you waiting for a Diwali gift from your employer, or have you already received a gift? Before celebrating, make sure you understand which tax rules apply. A gift from an employer may be tax-free up to a certain limit, but a bonus is taxable from the first rupee.

This difference between the two can have a big impact on your tax liability. The Income Tax Act, 2025, which came into effect from 1 April 2026 and replaced the Income Tax Act, 1961, increased the annual tax-free limit for gifts received from an employer from ₹ 5,000 to ₹ 15,000 (lower).

There will be no tax on this

SR Patnaik, Partner (Head-Taxation), Cyril Amarchand Mangaldas, Mint said in a report that the exemption is applicable from the tax year 2026-27 (FY27). This gift exemption limit of Rs 15,000 includes non-cash gifts, vouchers and tokens. Along with physical gifts, it also includes digital gift cards that can be used to purchase goods or services. The only condition is that the total value of all these gifts during the tax year should be less than Rs 15,000. This also includes gifts given to the family members of the employee.

What do the rules say?

If the total value of the gift reaches or exceeds ₹15,000, the entire amount is taxable. Patnaik said in the report that as per Rule 15 of the Income Tax Rules, 2026, only when the total value of all gifts in a tax year is less than Rs 15,000, the value of these gifts will be treated as ‘nil’. Therefore, as a matter of caution, it can be said that if the total value of Rs. 15,000 or more, the entire value of all gifts will be treated as part of the salary of the employee and will be taxable.

For example, if your employer pays you Rs. 10,000 worth of mobile phone and you get Rs. 4,000 if another gift is received, Rs. 14,000 will be tax free. But if the total value is Rs. 15,000 or more, the entire amount will be taxable.

Gift or bonus?

Not every payment received during Diwali is considered a ‘gift’. Cash payments including Diwali bonus are generally treated as salary and taxed accordingly. Patnaik said in a Mint report that if a cash gift is given by an employer without any conditions, it will also come under this limit. But if it is received in the form of Diwali bonus or professional bonus, it will not come under the limit of Rs 15,000. In such a case, the first amount will be treated as salary and will be taxed at 100%.

TDS screw

Taxation rules also determine whether the employer has to deduct tax at source (TDS) or not. If the total value of gifts is Rs. 15,000 or less, the employer need not deduct TDS. But if this value exceeds Rs 15,000 then deduction of TDS becomes necessary.

Ankit Jain, partner at Ved Jain & Associates, said in a Mint report that if the employer receives Rs. Any gift (whether in cash or kind) worth more than 15,000 will be taxable to the employee. This will be considered as part of the salary of the employee. The employer has to deduct TDS on such gifts, which is usually adjusted from the employee’s monthly salary.

An employee can check whether the gift amount has been included as income in his Form 130 (earlier Form 16) and whether the employer has correctly deducted tax on it. For the tax year 2026-27 and subsequent years, ‘Form 130’ has been replaced by ‘Form 16’ with effect from 1 April 2026.

Rebate Net

Employees who receive non-cash gifts (such as anything) within the exemption limit do not need to worry about any additional tax. But those who receive a cash bonus should look at how this payment affects their total taxable income. This is especially important for those salaried people whose annual income is Rs 12.75 lakh under the new tax regime.

Under Section 87A, resident taxpayers whose taxable income exceeds Rs. 12 lakhs they can claim tax rebate. With this their tax burden becomes zero. For salaried employees, Rs. 75,000 after applying the standard deduction, the total salary limit for employees without any other income is Rs. 12.75 lakhs becomes.

Understand the complete tax math

Suppose the annual salary of an employee is Rs 12.60 lakh. Rs. 75,000 after standard deduction of Rs. 11.85 lakhs, which is Rs. 12 lakhs comes within the rebate limit. Now, if an employee gets a Diwali bonus of Rs 50,000, the total salary will increase to Rs 13.10 lakh and the taxable income will increase to Rs 12.35 lakh. In such a case, the employee will not be eligible for full exemption under section 87A and will have to pay tax.

The total tax including health and education cess will be Rs 36,400. This means that the bonus of Rs 50,000 will come down to Rs 13,600 after tax. So, while the Diwali bonus may seem like an additional financial help, employees whose income is close to the tax-free limit should keep in mind that it may result in additional tax on them. Unlike a gift, a bonus can take an employee’s income above the exemption limit, increasing his tax burden.