Diwali is a time when employers give their employees bonus and gifts. These could be in the form of money or gifts. But do you know that the gift or bonus received from the company i.e. from the employer is not always tax-free on Diwali. When and how is the Diwali bonus received from the company? How is tax levied, let us find out.
Most companies give Diwali bonus to their employees. Usually this bonus is given in cash or directly transferred in the bank account. Some companies give Diwali bonus in kind i.e. in kind or goods. It is the employee’s job to decide how to spend or utilize the Diwali bonus. Therefore, you should also know when tax will be levied on it.
According to the provisions of Income-Tax Act, if an employee receives money from the company in cash or in his account, then it will be considered as Income From Salary. The bonus amount will be included in the employee’s salary. You will have to pay tax according to the tax slab in which you fall. For example, if your income falls in the 20% slab, then you will have to pay 20% tax on the bonus amount as well.
Many employees receive vouchers, coupons, gift hampers or tokens instead of money as Diwali bonus. Under Rule 3(7)(iv) of the Income-Tax Act, if an employee receives a voucher/coupon as a Diwali gift and its value is Rs 5,000 or more, then the amount of such gift will be taxable. If the value of the gift exceeds Rs 5,000, it will be considered a part of your salary and tax will have to be paid as per the tax slab. No tax will have to be paid if the amount of gift received from the company is less than Rs 5,000.
The point to be noted is that this limit of Rs 5,000 is not just for Diwali but for the entire financial year. Therefore, Diwali gifts will be tax-free only when the value of all gifts received from the employer in a year is Rs 5,000 or less. The amount of bonus or gift over and above the Rs 5,000 limit will be taxable.
Many employees get car, bike, gold coin or expensive gadgets as gifts as Diwali bonus. For these too the limit of Rs 5,000 will be applicable. After finding out the market value of the gift, subtract Rs 5,000 from it. You will have to pay tax on the amount left after deducting.
When bonus is received in cash or in account, the company deducts tax. If a company does not deduct tax or you receive any expensive thing as a gift, then you will have to show its value in your Income Tax Return (ITR).
If you have also received a Diwali bonus, then keep in mind that such gifts are not always tax-free. But yes, if you receive any gift on Diwali from your close relatives, who are mentioned as ‘relatives’ in the Income-Tax Act, such as parents, grandparents, spouse, in-laws, in-laws, then there is no tax of any kind, no matter what the value of the gift is. Apart from these relatives, if you receive gifts from anyone else, then only gifts up to Rs 50,000 in a financial year will be tax-free. If the gift amount exceeds Rs 50,000, the entire gift amount will be taxed.
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