Introduction: When Celebration Meets Compliance

Diwali — India’s festival of lights — is synonymous with joy, generosity, and gifting. From gold coins to dry fruit hampers, corporate goodies to cash bonuses, gifts are exchanged as a token of goodwill and appreciation.
But beyond the glitter and wrapping paper lies a less-talked-about aspect — the tax twist. Whether you’re an individual receiving gifts or a business distributing them, Diwali gifts can attract tax implications under the Income Tax Act, 1961.

Gift Tax for Individuals: How Much Is Too Much?

Under Section 56(2)(x) of the Income Tax Act, gifts received by an individual are tax-free only up to ₹50,000 in a financial year.
If the aggregate value of gifts exceeds ₹50,000, the entire amount (not just the excess) becomes taxable under “Income from Other Sources.”

However, there are exceptions. Gifts received are fully exempt when they come from:

• Relatives (as defined by the Act — including parents, siblings, spouse, etc.)
  
• On the occasion of marriage
  
• Under a will or inheritance
  
• In contemplation of death of the payer
  

Example:
If Riya receives Diwali gifts worth ₹60,000 from friends and business contacts (non-relatives), the whole ₹60,000 is taxable.
But if the same comes from her brother or parents, it’s entirely exempt.

Tax on Corporate Gifting: Businesses Beware

For companies and professionals, Diwali gifting is not just a gesture — it’s also a business expense.
But the tax department keeps a close eye on how these gifts are recorded.

1. Gifts to Employees:
   
   • If the total value of gifts given to an employee during the year exceeds ₹5,000, it is considered a taxable perquisite under Section 17(2).
     
   • The employer must include the gift’s value in the employee’s Form 16 and deduct TDS accordingly.
     
     
2. Gifts to Clients or Vendors:
   
   • These can be claimed as business promotion expenses or sales incentives, provided there is adequate documentation (invoices, delivery proof, etc.).
     
   • However, lavish personal gifts (like vacations, jewelry, etc.) may not qualify as deductible business expenses.
     
     
3. GST Angle:
   
   • Input Tax Credit (ITC) cannot be claimed on goods or services distributed free of cost, including gifts, as per Section 17(5)(h) of the CGST Act.
     
   • So, if your company gifts branded hampers worth ₹1 lakh, you can’t claim the GST paid on those items as credit.
     
     

Smart Ways to Stay Tax-Compliant

• Maintain gift registers with name, PAN, and relationship of recipients.
  
• Prefer gift vouchers or digital payments for transparency.
  
• Keep invoices and records if claiming corporate gift expenses.
  
• Educate employees about perquisite taxation and declarations.
  
• Avoid giving gifts that may appear extravagant or personal in a corporate context.
  
  

Balancing Festivity and Financial Discipline

Diwali gifts are meant to spread joy, not trigger tax troubles. By understanding the rules, you can ensure your celebrations stay both heartfelt and compliant.
After all, true festive prosperity lies not just in giving generously — but also in giving wisely.