Diwali Bonus and Gifts to Employees: Tax, GST and Payroll in 2026
A Diwali cash bonus is fully taxable salary. Gifts and vouchers to an employee are tax-free up to ₹15,000 in a tax year from April 2026, but the whole amount becomes taxable if the total exceeds it. Under GST, gifts up to ₹50,000 a year are not a supply, and input tax credit on gifts is blocked.
Festive season is when employers pay the most discretionary money of the year: cash bonuses, gift vouchers, sweets, appliances. Each is taxed differently, and the rules changed in 2026.
Cash bonus
A Diwali or festival cash bonus is salary. It is fully taxable and must be included when working out TDS.
- ✓Spread the extra tax over the remaining months, or deduct it in the bonus month if the employee prefers.
- ✓A festival bonus is separate from statutory bonus under the Code on Wages. Paying one does not settle the other, unless your policy and the law treat it as an advance against statutory bonus.
Gifts and vouchers
From 1 April 2026, gifts, vouchers and tokens from the employer are tax-free up to ₹15,000 a year per employee (earlier ₹5,000).
| Gift in the tax year | Taxable as a perquisite |
|---|---|
| ₹12,000 gift card at Diwali | Nil |
| ₹12,000 gift card at Diwali plus ₹5,000 at New Year | Whole ₹17,000 becomes taxable |
| Sweets box worth ₹1,500 | Counts towards ₹15,000 |
If the year's total crosses ₹15,000, the full amount is taxable, not only the excess. Plan the year's gifts together.
GST on employee gifts
- ✓Gifts to an employee worth up to ₹50,000 in a financial year are not treated as a supply, so no GST is payable on giving them.
- ✓Input tax credit on gifts is blocked. You cannot claim the GST paid on goods bought to give away as gifts.
A worked example
A Rajkot engineering firm with 80 staff gives each employee a ₹10,000 bonus and a ₹4,000 gift voucher.
- ✓Bonus: ₹10,000 added to each employee's salary for October, with TDS as applicable.
- ✓Voucher: tax-free, provided the employee gets no other gifts above ₹11,000 for the rest of the year.
- ✓GST: no output tax on the vouchers; no credit on any GST paid when buying them.
Payroll checklist
- Record cash bonuses as earnings in payroll, not as an expense in the books only.
- Keep a gift register per employee for the tax year.
- Stop at ₹15,000 per employee, or treat the total as taxable.
- Do not claim GST credit on gifts.
- Show bonuses clearly on the payslip.
Frequently asked questions
Is a bonus paid to a contractor's workers our payroll cost?
No. It is paid through the contractor, who includes it in their wages and taxes.
Do gifts to directors follow the same rule?
Yes, for directors who are employees.
Is a sweets box for every employee really counted?
Strictly, yes. Small amounts rarely matter, but they add up with other gifts.
Sources
- ✓Income Tax Rules 2026: exemption limits, ClearTax
- ✓Diwali gifts to employees and clients: tax and GST rules 2026, TaxGarden
- ✓GST on gifts by employers above ₹50,000, TaxHeal
This is a summary, not tax advice. Confirm with your chartered accountant before you rely on it.
Written by
HR Manager, Airwix Technologies (Sleet)
Nihit Dobariya is the HR Manager at Airwix Technologies in Ahmedabad, where he runs HR and payroll for the team behind Sleet. He writes about payroll, PF and ESIC, professional tax, the labour codes and everyday HR practice for Indian employers, and checks each rule against the official notification before it is published.
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