Diwali gifts 2026 tax rules: Rs 15,000 employee gift limit, Rs 50,000 GST cap, 10% TDS on client gifts above Rs 20,000. Employer and recipient guide.
TL;DR: Employee gifts, vouchers and tokens carry nil perquisite value only if the year's total is below ₹15,000 (up from ₹5,000) under the Income-tax Rules 2026. Cash never qualifies. GST treats employer gifts up to ₹50,000 per employee per year as no supply, and the input credit on those gifts is blocked. Client and dealer gifts above ₹20,000 a year trigger 10% TDS under section 194R of the 1961 Act, now section 393(1) of the 2025 Act. Recipients who are not employees pay tax on gifts above ₹50,000 from non-relatives. Dhanteras gold is 3% GST. Deposit November TDS by 7 December.
The Diwali gift rulebook changed this year, and the biggest change is a number most employers still quote wrong. The employee gift limit is ₹15,000, not ₹5,000, from 1 April 2026[1]. Diwali is on Sunday 8 November and Dhanteras on Friday 6 November 2026, so every hamper you ship lands in the first festival season under the Income-tax Act 2025. This post covers employee gifts, GST and blocked credit, TDS on client gifts, what recipients owe, gold, cash limits and the Diwali bonus. It ends with a worked example for a 40-employee company and a dated checklist.
The rules at a glance
Start with the matrix. Every row is explained below with its source.
| Who gives | Who receives | Tax head | Threshold | Section |
|---|---|---|---|---|
| Employer, non-cash gift, voucher or token | Employee | Salary (perquisite) | Nil value if aggregate is below ₹15,000 in the tax year | Income-tax Rules 2026, Rule 15; earlier Rule 3(7)(iv) |
| Employer, cash gift or bonus | Employee | Salary | No exemption at any amount | Salary provisions, 1961 Act s.17; 2025 Act s.16 and s.17 per mapping tables |
| Employer (GST) | Employee | Not a supply up to ₹50,000 a financial year | ₹50,000 per employee | CGST Act Schedule I, item 2 proviso |
| Business | Client, dealer, vendor | TDS on benefit, 10% | Aggregate above ₹20,000 a financial year | s.194R, 1961 Act; s.393(1), 2025 Act |
| Any non-relative | Any person (not employee) | Income from other sources | Money or property above ₹50,000 aggregate | s.56(2)(x), 1961 Act; s.92(2)(m), 2025 Act |
| Any person | Business taking cash | Penalty on receiver | ₹2 lakh or more in one day, transaction or event | s.269ST, 1961 Act |
| Employer, statutory bonus | Employee earning up to ₹21,000 a month | Salary | 8.33% minimum, 20% maximum of capped wages | Code on Wages 2019, s.26 |
Which law applies: the 1961 Act or the 2025 Act
The Income-tax Act 2025 applies from 1 April 2026, so Diwali 2026 sits inside tax year 2026-27[1]. Section numbers changed. Here is what I could confirm and how confident I am.
- Salary TDS: old s.192 is now s.392. The department's Form 123 FAQ says Form 123 replaces Form 12BA, the perquisites statement, under s.392(5)(a) and Rule 204(2) of the Income-tax Rules 2026[3].
- Section 194R: one commercial TDS site maps it to s.393(1), table serial 8(iv), return form 26Q[4]. I found no official page repeating that, so check the table before you file.
- Income from other sources: old s.56 is now s.92[5]. A section-by-section copy of s.92 places the old 56(2)(x) gift rule at s.92(2)(m), with exceptions in s.92(3)[6]. That is a secondary source too.
- Perquisites: the Form 123 FAQ names s.17(1)(h) and (i) of the 2025 Act as the perquisite provisions[3]. A secondary mapping table says the salary definition moves to s.16[5].
- Section 269ST and the 271DA penalty: I could not verify the new numbers, so this post uses the 1961 numbering for both.
Per the sources I could reach, the substance of each rule below is unchanged except the employee gift limit. Quote both section numbers until your CA confirms the table.
Employee gifts: the ₹15,000 rule
Under Rule 3(7)(iv) of the Income-tax Rules 1962, gifts, vouchers and tokens given by an employer were valued at nil if the aggregate stayed below ₹5,000 in the year. The Income-tax Rules 2026, notified on 20 March 2026 after a draft in February, raise that to ₹15,000[1]. The rule text is Rule 15(5)(a), Table IV, item 4 of the Income-tax Rules 2026: the value is "the sum equal to the amount of such gift", and nil only if the value of the gift, voucher or token is "below Rs. 15,000 in aggregate during the tax year"[18].
The plan flagged ₹15,000 as an unexplained figure. This is it.
How to apply the limit
- One bucket for the year. The limit is per employee per tax year across every gift: Diwali hamper, birthday voucher, service award. Tax year 2026-27 runs 1 April 2026 to 31 March 2027, so gifts since April count.
- Cash gets nothing. Cash gifts, gift cheques and the Diwali "bonus in an envelope" are salary in full[7].
- Cross the line and plan for the whole amount. The rule values gifts at their full amount and gives nil only when the aggregate is below ₹15,000. The rule text says "below", so ₹15,000 exactly is already fully taxable. Stay under it.
- Vouchers. Closed-loop store vouchers fit the rule. Reloadable or cash-convertible cards risk being treated as cash, so ask the issuer.
Above the limit, the gift is a perquisite and enters salary TDS under s.392, with the value reported to the employee on Form 123.
GST on employee gifts and the credit trap
Schedule I, item 2 of the CGST Act treats supplies between related persons as supplies even without payment, when made in the course of business. Employer and employee are related persons. The proviso then says gifts "not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply"[8].
CBIC said the same in a July 2017 press release: gifts up to ₹50,000 a year are outside GST, while gifts above that made without consideration "are subject to GST" when made in the course of business[9]. The wording points to GST on the whole value once you cross the line. "Gift" is undefined; the release calls it voluntary, occasional and not demandable by the employee. A festival hamper fits. A fixed Diwali payment in the appointment letter does not.
Blocked credit under section 17(5)(h)
Section 17(5)(h) blocks credit on goods "lost, stolen, destroyed, written off or disposed of by way of gift or free samples". CBIC's sales promotion circular 92/11/2019-GST applies it directly: ITC is not available on inputs used for gifts or free samples distributed without consideration. The one exception: where the distribution is a supply because of Schedule I, the supplier can take the credit[10].
| Gift | GST on the gift itself | ITC on the purchase |
|---|---|---|
| Hamper to an employee, within ₹50,000 a year | Not a supply | Blocked |
| Gift to an employee above ₹50,000 a year | Supply, GST payable | Available, per circular 92/11/2019 para A(ii) |
| Hamper to a client, dealer or vendor | Not a supply (no consideration, not related) | Blocked |
| Voucher bought for staff | Voucher is neither goods nor services; underlying supply taxed on redemption | No GST charged at purchase |
One caution. Circular 92/11/2019 remains in force, and Circular 251/08/2025 still refers to it. The circular withdrawn in 2019 was No. 105, a different one. The block stands on the statute text in any case, so claim nothing on gifts. The voucher row comes from circular 243/37/2024-GST[11].
Where do the credit mistakes happen? In GSTR-2B. A hamper invoice from a sweet maker or gift vendor appears there as eligible credit, and the accounts clerk claims it. Pull gift invoices before the October 2026 GSTR-3B and reverse any you took. The GST ITC deadline guide lists the other blocked credits and the 30 November cut-off. Check hamper rates with the GST rate finder and split the tax out with the GST calculator.
Gifts to clients, dealers and vendors: section 194R
Since 1 July 2022, section 194R has required the person giving a benefit or perquisite arising from business or profession to a resident to deduct 10% when the value in a financial year goes above ₹20,000[2]. Circular 12/2022 of 16 June 2022 and circular 18/2022 of 13 September 2022 explain how it works[12][13].
| Question | Answer | Source |
|---|---|---|
| Cash or kind? | Both. Free samples, cars, trips and event tickets are benefits | Circular 12/2022, Q2 and Q4 |
| Valuation | Fair market value, or your purchase price if you bought it. GST is excluded | Circular 12/2022, Q5 |
| Threshold | ₹20,000 per recipient per financial year; above it, tax applies to the whole value | s.194R proviso |
| Who is exempt as giver | Individuals and HUFs with prior-year turnover up to ₹1 crore (business) or receipts up to ₹50 lakh (profession). Companies and firms get no turnover relief | Circulars 12/2022 and 18/2022 |
| Gift in kind: how to pay | Make sure the tax is paid before you release the gift: take the client's advance tax challan, or deduct and pay it yourself. Report in Form 26Q | Circular 12/2022, Q9 |
Small gifts add up. A distributor who got a ₹9,000 festival box in April, a ₹7,000 conference trip in July and a ₹6,000 Diwali hamper has crossed ₹20,000, and the whole ₹22,000 is in scope. Track benefits per recipient, not per occasion. Estimate the deduction with the TDS calculator.
What recipients owe
Employees
Gifts from your employer are salary perquisites, not "income from other sources". The residual head applies only to income not chargeable under another head[6]. An employee's hamper is therefore taxed as a salary perquisite under Rule 15, not under the non-relative gift rule[18]. The ₹15,000 limit decides.
Everyone else: section 56(2)(x) and section 92(2)(m)
If you receive money from a non-relative and the total in the tax year exceeds ₹50,000, the whole sum is taxable. Movable "property" received for free is taxable if its aggregate fair market value exceeds ₹50,000. In the 2025 Act, "property" means listed capital assets such as shares, jewellery and bullion[6]. Immovable property uses stamp duty value, with the same ₹50,000 trigger.
Main exceptions, not the full list[6]:
- Gifts from a relative
- Gifts on the recipient's marriage
- Gifts under a will or inheritance
- Gifts in contemplation of the donor's death
- Receipts from a local authority or a registered non-profit organisation
- Gifts from a HUF to its member, from specified funds or trusts, and on transfers exempt under s.47 of the 1961 Act[20]
Diwali is not on that list. A ₹60,000 gold coin from a non-relative is taxable to you in full. From your brother it is not. Sweets and decor are not listed "property", so the rule rarely bites on hampers.
Dhanteras: gold, silver and cash limits
Dhanteras is on 6 November. Gold carries 3% GST. CBIC's jewellery FAQ confirms 3% on the total transaction value of jewellery whether or not the making charge is shown separately[14]. The 2017 CBIC sectoral FAQ puts job work on jewellery at 5% of job charges; confirm against the current services rate notification, which was re-issued in September 2025. The September 2025 overhaul left jewellery (HSN 7113) and coin (HSN 7118) at 3% (CBIC Schedule V, 1.5% CGST + 1.5% SGST).
Cash is the real limit. Section 269ST bars a person from receiving ₹2 lakh or more in cash from one person in a day, for one transaction, or for one event. The penalty falls on the receiver and equals the amount received[15]. A jeweller who accepts ₹2.4 lakh in notes for a Dhanteras coin faces a ₹2.4 lakh penalty. Use UPI or bank transfer for everything above those lines.
A coin gifted to an employee will usually top ₹15,000, so plan for full perquisite tax and blocked credit on the 3% GST.
Diwali bonus is not a gift
A Diwali bonus is salary. It goes into the employee's taxable pay and attracts TDS under s.392 (old s.192) at the employee's slab, with no ₹15,000 shelter.
The statutory bonus regime has moved. The Payment of Bonus Act 1965 is now run through Chapter IV of the Code on Wages 2019, in force from 21 November 2025. On 25 August 2026 the labour ministry notified two things for central-sphere establishments: employees earning up to ₹21,000 a month with at least 30 days' work in the year are eligible under s.26(1), and bonus is computed on wages of ₹7,000 or the minimum wage, whichever is higher. Both apply retrospectively from 21 November 2025[16]. The percentage bands are unchanged at a minimum of 8.33% and a maximum of 20%[17]. At the ₹7,000 base, 8.33% for twelve months is ₹6,997 and 20% is ₹16,800.
Most SMEs fall under their state government, and the law firm notes that state notifications are expected, not yet issued. Check your state before you finalise the payout.
Worked example: a 40-employee SME
An illustrative company, taxed as a private limited company, buys gifts for Diwali 2026. All amounts are in rupees. GST at 18% on the gifts.
| Item | Amount (₹) | Income tax outcome | GST and ITC outcome |
|---|---|---|---|
| 40 employee hampers at ₹4,500 each, GST included | 1,80,000 | Nil perquisite, each employee below ₹15,000 | Not a supply. GST of ₹27,458 (180,000 × 18/118) paid to the vendor is blocked ITC |
| One employee, Meera, also got an ₹11,000 voucher in July | 15,500 total (4,500 + 11,000) | Aggregate above ₹15,000, so the full ₹15,500 is perquisite. At a 30% slab plus 4% cess (31.2%) that is ₹4,836 of extra tax, deducted through salary TDS | Voucher: no GST at purchase |
| 12 client hampers at ₹25,000 each, before GST | 3,00,000 | Each above ₹20,000. 10% TDS is ₹2,500 per client, ₹30,000 in all, on the pre-GST value | GST ₹4,500 per hamper, ₹54,000 in all, blocked ITC |
| One cash bonus to an employee in the 20% slab | 12,000 | Salary. At a 20% slab plus cess (20.8%) the extra tax is ₹2,496 | None |
Now the cash view. Total spend on gifts and bonus is ₹1,80,000 + ₹3,54,000 (clients with GST) + ₹12,000 = ₹5,46,000. Blocked ITC is ₹27,458 + ₹54,000 = ₹81,458, which is 15.3% of the gift spend and a cost you carry whatever you do. The client TDS of ₹30,000 is a separate cash outflow unless the clients give you advance tax challans. If you absorb the tax yourself, gross it up (Circular 12/2022, Q9): the tax is itself a benefit, so TDS is ₹3,00,000 × 10/90 = ₹33,333, not ₹30,000 (₹2,778 per client), and the outflow is about ₹5,79,333.
On the recipient side, none of the 12 clients owes tax under the ₹50,000 rule on a hamper of this size, but each treats the benefit under its own head of income and claims the ₹2,500 as TDS credit. One ₹11,000 voucher in July turned Meera's tax-free hamper into ₹4,836 of tax. Check the annual tally before the purchase order.
Employer checklist for Diwali 2026
| Date | Action |
|---|---|
| Now to 30 October | List every gift each employee has received since 1 April 2026; cap the Diwali gift so the total stays below ₹15,000 |
| Now to 30 October | Total each client's benefits since 1 April; flag anyone above ₹20,000 for 194R |
| By 3 November | Ask the accounts team to mark gift invoices as blocked ITC in the purchase register |
| Before 6 November | Obtain client advance tax challans or arrange to pay the 10% yourself, before releasing gifts in kind |
| 6 November (Dhanteras) | Pay gold and bullion purchases by bank or UPI; no cash at ₹2 lakh or more |
| 8 November (Diwali) | Gifts and bonus go out |
| By 20 November | October GSTR-3B: confirm no gift credit was claimed |
| By 7 December | Deposit TDS deducted in November (194R and salary TDS); Rule 218 of the Income-tax Rules 2026 (Rule 30 of the 1962 Rules): by the 7th of the following month, and 30 April for March deductions[19]. 194R deducted on gifts released in October is due by 7 November; November deductions by 7 December. No separate form |
| By 30 April 2027 | Form 123, only if salary exceeds ₹1,50,000 a year and the perquisite value is not nil, issued alongside Form 130, the salary TDS certificate[3] |
Plan the festival budget itself with the Diwali budget planner.
Frequently Asked Questions
What is the tax-free Diwali gift limit for employees in 2026?
Nil perquisite value applies only when gifts, vouchers and tokens from the employer total below ₹15,000 in tax year 2026-27, under Rule 15 of the Income-tax Rules 2026. The earlier limit was ₹5,000. Cash is always taxable.
Is the whole gift taxed if I go over ₹15,000?
Yes. Rule 15 values the gift at the sum equal to the amount of the gift, and nil only if the year's total is below ₹15,000.
Can a company claim GST credit on Diwali gifts?
No, for gifts up to ₹50,000 per employee a year and for client gifts. Section 17(5)(h) blocks credit on goods given as gifts. Credit is available only when a gift exceeds ₹50,000 and becomes a taxable supply under Schedule I.
Does TDS apply when I give a gift to a client?
Yes, if you carry on a business or profession and the total benefit to that resident in the financial year goes above ₹20,000. The rate is 10% under section 194R, now section 393(1) of the 2025 Act, on the value without GST. Individuals and HUFs under ₹1 crore of business turnover or ₹50 lakh of professional receipts are exempt as givers.
Sources
- KPMG, Flash Alert 2026-081: Income-tax Rules 2026 notified 20 March 2026, gift limit raised from ₹5,000 to ₹15,000 (accessed 16 October 2026)
- Income Tax Department, Section 194R, 1961 Act (accessed 16 October 2026, read from the search extract because the page blocked direct fetch)
- Income Tax Department, Form 123 FAQs: s.392(5)(a), Rule 204(2), old Form 12BA, s.192, Rule 26A (accessed 16 October 2026, read from the search extract because the page blocked direct fetch)
- TDSMAN, TDS on Benefit or Perquisite, s.393(1) table serial 8(iv) (secondary; accessed 16 October 2026)
- ClearTax, Income-tax Act 2025 section numbers, old vs new (secondary; accessed 16 October 2026)
- EZTax, Income-tax Act 2025 section 92 text, clause (m) and sub-section (3) exceptions (secondary; accessed 16 October 2026)
- Income Tax Department, Income-tax Rules 2026, Rule 15(5)(a), Table IV, item 4 (accessed 16 October 2026)
- Income Tax Department, Income-tax Rules 2026, Rule 218, deposit of tax deducted at source (accessed 16 October 2026)
- Income Tax Department, section 56 (1961 Act) gift provisions and exceptions (accessed 16 October 2026)
- Vantage Circle, Recognition and rewards tax rules, Rule 15(5)(a) Table IV (secondary; accessed 16 October 2026)
- CBIC, CGST Act 2017, Schedule I, item 2 and proviso (accessed 16 October 2026)
- CBIC, Press Release on GST treatment of gifts and perquisites, July 2017 (accessed 16 October 2026)
- CBIC, Circular 92/11/2019-GST of 7 March 2019, sales promotion schemes, paragraph A(ii) on section 17(5)(h) (accessed 16 October 2026)
- CBIC, Circular 243/37/2024-GST of 31 December 2024, GST treatment of vouchers (accessed 16 October 2026)
- CBDT, Circular 12/2022 of 16 June 2022 on section 194R, reproduced by Taxheal (secondary copy; accessed 16 October 2026)
- CBDT, Circular 18/2022 of 13 September 2022 on section 194R, reproduced by TaxGuru (secondary copy; accessed 16 October 2026)
- CBIC, Sectoral FAQ on gems and jewellery, questions 7 and 8 (2017 FAQ; accessed 16 October 2026)
- StartupTalky, Section 269ST cash receipt limit explained (secondary; accessed 16 October 2026)
- Khaitan and Co, Ergo alert on notifications S.O. 4710(E) and S.O. 4711(E) of 25 August 2026 under the Code on Wages (accessed 16 October 2026)
- Mondaq, Ministry of Labour operationalises statutory bonus provisions (secondary; accessed 16 October 2026)
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