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.

How is Diwali cash bonus taxed?

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.

When are gifts from employer tax-free?

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.