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Diwali Gifts under the Income-tax Act, 2025: Employee Gift Exemption Increased to INR 15,000
- The Income Tax Act, 2025, and the Income Tax Rules, 2026, have introduced an important change in the taxation of employee gifts. Beginning with tax year 2026-27, the tax-free limit for gifts provided by employers has been significantly increased.
- A significant relief has been introduced for employees under the Income-tax Rules, 2026. The tax-free limit for gifts, vouchers, and gift tokens provided by employers has been increased from INR 5,000 to INR 15,000 per employee per financial year.
Increased Tax-Free Limit for Employee Gifts
Under Rule 15 of the Income-tax Rules, 2026, gifts, gift vouchers, and gift tokens provided by an employer to an employee will be treated as a nil-value perquisite if their aggregate value during the financial year does not exceed INR 15,000.
This represents a substantial increase from the earlier threshold of INR 5,000 prescribed under the Income-tax Rules, 1962. The enhanced exemption is available under both Old Tax Regime and New Tax Regime
How the INR15,000 Limit Applies
The exemption limit operates on an annual aggregate basis, not on a festival-wise basis. This means that all gifts received from the employer during the financial year, including Diwali gifts, New Year gifts, Festival gift vouchers, Corporate gift hampers, Non-cash reward tokens must be combined for determining the INR 15,000 threshold.
Important Tax Rule
Once the aggregate value of gifts reaches or exceeds INR 15,000 in a financial year:
- The entire value of the gifts becomes taxable as a salary perquisite.
- Tax is required to be deducted at source (TDS) under Section 392.
- The taxable value must be reported in Form 130, which replaces the earlier Form 16 system.
Cash Gifts Are Not Covered
The exemption applies only to gifts, vouchers, and tokens provided in kind. The following are fully taxable as salary income irrespective of the INR 15,000 limit:
- Diwali bonus
- Cash gifts
- Gift allowance paid through payroll
- Festival cash incentives
- Monetary rewards
Such payments are treated as salary and taxed in full.
Practical Impact for Employers and Employees
For Employers
- Gift policies and festive reward programs may be reviewed in light of the increased ₹15,000 threshold.
- Payroll departments should maintain annual tracking of gifts provided to each employee.
- Proper documentation of gift vouchers, coupons, and non-cash benefits should be maintained.
For Employees
- Non-cash gifts up to an aggregate value of INR 15,000 during the financial year can be received without tax implications.
- Employees should monitor the combined value of all gifts received from their employer during the year to avoid unexpected taxability.
Quick Illustration
| Scenario | Tax Treatment |
|---|---|
| Diwali Gift Hamper worth ₹8,000 | Not Taxable |
| Diwali Voucher INR 10,000 + New Year Gift INR 4,000 | Not Taxable (Total INR 14,000) |
| Diwali Voucher INR 10,000 + New Year Gift INR 6,000 | Entire INR 16,000 Taxable as Perquisite |
| Diwali Cash Gift INR 10,000 | Fully Taxable as Salary |
| Diwali Bonus INR 15,000 | Fully Taxable as Salary |
Key Takeaway
For the first time under the Income-tax Act, 2025, employers can provide non-cash gifts, vouchers, and tokens worth up to INR 15,000 per employee per financial year without creating a taxable perquisite. However, the limit is annual and aggregated, and cash payments remain fully taxable as salary income.
