Diwali Gifts Under the Income-tax Act, 2025: Tax-Free Employer Gift Limit Increased to ₹15,000 – A Festive Relief for Employees!
First Diwali Under the New Income-tax Act: Higher Gift Exemption, New Section Numbers and Important Payroll Implications
Diwali is the festival of lights, happiness, prosperity and, of course, gifts! For salaried employees, a Diwali gift from the employer is not merely a festive gesture but may also have tax implications.
This Diwali brings an additional reason to celebrate. With the Income-tax Act, 2025 and the Income-tax Rules, 2026 becoming applicable from 1 April 2026, the tax-free limit for gifts received from employers has been increased from ₹5,000 to ₹15,000.
The revised limit is a welcome relief for employees and an important development for employers, HR departments and payroll professionals.
However, the increase comes with certain conditions. The limit is annual and aggregate, and the tax treatment differs depending upon whether the employee receives a gift in kind, a voucher or cash.
Let’s understand the new provisions in detail.
1. What Has Changed Under the Income-tax Act, 2025?
Under the erstwhile Income-tax Act, 1961, gifts received by employees from their employers on ceremonial occasions or otherwise were governed by the perquisite valuation provisions.
The corresponding exemption limit was ₹5,000 in aggregate during the financial year.
Under Rule 15 of the Income-tax Rules, 2026, the value of gifts, vouchers or tokens received by an employee or a member of the employee’s household from the employer is treated as nil if the aggregate value is below ₹15,000 during the tax year.
The comparison is as follows:
Particulars| Earlier Law| New Law
Applicable legislation| Income-tax Act, 1961| Income-tax Act, 2025
Relevant rule| Rule 3(7)(iv), Income-tax Rules, 1962| Rule 15, Income-tax Rules, 2026
Tax-free gift threshold| ₹5,000| ₹15,000
Period of aggregation| Financial year| Tax year
Applicability| Earlier years| Tax Year 2026-27 onwards
Thus, the tax-free gift threshold has effectively been tripled.
2. How Does the ₹15,000 Gift Limit Work?
The most important aspect of the new provision is that the limit is annual and aggregate.
It is not a separate exemption of ₹15,000 for every festival.
All qualifying gifts received from the employer during the tax year are required to be aggregated.
For example, if an employee receives:
– Diwali gift: ₹8,000
– New Year gift: ₹3,000
– Birthday gift: ₹2,000
The aggregate value of gifts would be ₹13,000.
Since the aggregate value is below ₹15,000, the entire amount would be treated as nil for perquisite valuation purposes.
However, if the employee receives:
– Diwali gift: ₹10,000
– New Year gift: ₹4,000
– Birthday gift: ₹2,000
The aggregate value would be ₹16,000.
In such a situation, the entire aggregate value of ₹16,000 would become taxable as a salary perquisite, rather than merely the excess of ₹1,000.
This is an important point for employees and payroll departments to remember.
3. Is the ₹15,000 Limit Available Under Both Tax Regimes?
Yes. The revised gift valuation threshold under Rule 15 applies irrespective of whether the employee opts for the old tax regime or the new tax regime.
The treatment of qualifying employer-provided gifts under the perquisite valuation rules is not dependent upon the employee’s choice of tax regime.
Therefore, an employee opting for the old regime can also benefit from the revised limit.
Similarly, an employee opting for the new regime can avail the same benefit.
This makes the increase in the gift threshold a broad-based relief for salaried employees.
4. What Types of Gifts Are Covered?
The provision covers gifts, vouchers and tokens received from the employer on ceremonial occasions or otherwise.
Examples may include:
– Diwali gift hampers;
– Electronic gadgets;
– Household articles;
– Gold or silver coins;
– Gift vouchers;
– Shopping vouchers; and
– Tokens redeemable against goods or services.
The important consideration is the aggregate value of such qualifying gifts received during the tax year.
Employers should maintain proper employee-wise records to ensure that the annual limit is correctly monitored.
5. Is a Cash Diwali Bonus Tax-Free Up to ₹15,000?
This is perhaps the most important distinction.
The ₹15,000 threshold should not be confused with a general exemption for all festive payments.
A cash Diwali bonus, cash gift or gift allowance paid through payroll is taxable as salary.
For example:
Nature of payment| Amount| Tax treatment
Diwali gift in kind| ₹10,000| Nil perquisite value, subject to aggregate threshold
Gift voucher| ₹12,000| Nil perquisite value, subject to aggregate threshold
Cash Diwali bonus| ₹10,000| Fully taxable as salary
Cash gift allowance| ₹15,000| Fully taxable as salary
Thus, employers cannot automatically treat a cash bonus as tax-free merely because it is below ₹15,000.
The distinction between a gift in kind and a monetary payment is crucial.
6. What Happens When the Gift Value Exceeds ₹15,000?
The wording of Rule 15 is important.
The value of the gift, voucher or token is treated as nil only if its aggregate value is below ₹15,000 during the tax year.
Consequently, where the aggregate value reaches ₹15,000 or exceeds it, the entire aggregate value becomes taxable as a perquisite.
For example:
– Aggregate gifts of ₹14,999: Nil perquisite value.
– Aggregate gifts of ₹15,000: Entire amount taxable.
– Aggregate gifts of ₹18,000: Entire amount taxable.
This creates a threshold effect.
An employer planning a festive gift programme should therefore carefully consider the annual aggregate value of gifts given to employees.
7. TDS Implications Under Section 392 of the Income-tax Act, 2025
Under the Income-tax Act, 1961, salary-related TDS was governed by Section 192.
Under the Income-tax Act, 2025, the corresponding provision is Section 392.
Where the aggregate value of qualifying gifts becomes taxable as a salary perquisite, the employer is required to consider the taxable value while computing the employee’s estimated salary income and deducting TDS under Section 392.
The salary TDS certificate under the new framework is Form No. 130, which corresponds to the erstwhile Form No. 16.
Thus, employers must ensure that taxable gifts and perquisites are appropriately reflected in payroll calculations and the applicable salary TDS certificate.
8. Practical Implications for Employers and Payroll Departments
The increase in the gift exemption limit provides employers with greater flexibility in designing employee welfare and festive gift programmes.
However, the following precautions are advisable:
1. Maintain an employee-wise gift register
All gifts, vouchers and tokens provided during the tax year should be tracked.
2. Aggregate gifts across festivals
Diwali, New Year, birthdays and other ceremonial occasions should be considered collectively.
3. Distinguish cash payments from gifts in kind
Cash bonuses and allowances should be processed as salary.
4. Review the festive gift budget
Employers who previously structured their gift programmes around the ₹5,000 threshold may consider revisiting the budget in light of the revised limit.
5. Coordinate with payroll
Where the aggregate value becomes taxable, the perquisite should be appropriately included in salary computation and TDS under Section 392.
6. Maintain supporting documentation
Invoices, vouchers, employee-wise distribution records and details of gift values should be preserved.
The revised threshold is a welcome development, but proper documentation and payroll compliance remain essential.
Conclusion: A Bigger Gift from the Tax Department This Diwali!
The increase in the tax-free employer gift threshold from ₹5,000 to ₹15,000 under Rule 15 of the Income-tax Rules, 2026, is a welcome festive relief for salaried employees.
It allows employers to provide more generous non-monetary festive gifts without triggering a salary perquisite, provided the aggregate value remains below the prescribed threshold.
However, employees should remember that the limit is annual and aggregate, not festival-wise. Further, cash bonuses and monetary allowances continue to be taxable as salary.
For employers, the new limit provides an opportunity to revisit employee gifting policies while ensuring proper payroll compliance.
This Diwali, the gift may be bigger, the threshold may be higher, but the golden rule remains the same: Celebrate generously, but calculate carefully!
Wishing everyone a very Happy Diwali and a Prosperous New Year!
Legal References
1. Section 17, Income-tax Act, 2025 – Perquisites.
2. Section 392, Income-tax Act, 2025 – TDS on salary.
3. Rule 15, Income-tax Rules, 2026 – Valuation of perquisites.
4. Form No. 130, Income-tax Rules, 2026 – Salary TDS certificate (corresponding to Form No. 16 under the earlier law).
