Is Diwali Bonus Tax-Free? What Every Employee Should Know

Diwali Bonus Taxable: As the Diwali festival season arrives, all the employees will be looking for a festival bonus. Businesses and corporate offices mostly give their employees cash, gift cards, clothing, sweets, or even tech-related related as a bonus. But most of the employees are not aware that these Diwali bonuses can also be taxable in some situations. Not every Diwali gift is taxable, but some things should be taxed according to the Income Tax Department.

Is Diwali Bonus Taxable?
In general, employer gifts are tax-free as long as they don’t exceed Rs 5,000. This can include a box of sweets, clothing, and even any tech-related items that are less than 5000 rupees. But the gifts which are more than Rs. 5000 (like Jewelry or any expensive electronics) can be taxable. Like ordinary salary income, the entire value of these presents is added to the employee’s income and subject to the corresponding tax rate.

Is Diwali Cash Bonus Taxable?
Cash bonuses are fully taxable and considered part of an employee’s income, unlike minor presents. So, for a better understanding, imagine your Diwali bonus is Rs. 30,000, which will be added to your yearly income and taxed in accordance with your income tax rate. It is strictly advised to all employees to declare their incentives in their Income Tax Returns (ITR) to avoid receiving notices from the Income Tax department.

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Understand New Tax System:
1. Up to Rs 4 lakh annual income: Tax-free

2. Rs 4 lakh-Rs 8 lakh annual income: 5% tax

3. Rs 8 lakh-Rs 12 lakh annual income: 10% tax

4. Rs 12 lakh-Rs 16 lakh annual income: 15% tax

5. Rs 16 lakh-Rs 20 lakh annual income: 20% tax

6. Rs 20 lakh-Rs 24 lakh annual income: 25% tax

7. Above Rs 24 lakh annual income: 30% tax

In this new tax system, also of 60,000 rupees is also allowed for the income of up to Rs. 12 Lakhs, which can reduce the overall tax burden slightly. It is advised to make sure that gifts or bonuses which is under 5000 rupees are exempted, but all cash bonuses should be included in their income for tax purposes.

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