Salaried? Non-cash gifts worth over ₹5000 from your employers are not tax-free; here's why

Diwali 2025 is over. During the festival, many employers offer various cash and non-cash gifts to their employees. While cash gifts are shared with employees as a Diwali bonus, employers also share many types of non-cash gifts, including sweet and fruit boxes, gift hampers, and much more.

However, both the cash and non-cash gifts provided by employers to their employees can be subject to taxation under various provisions of the Income Tax Act, 1961.

In this article, let us understand how cash and non-cash gifts from employers are taxed.

According to CA Dr Suresh Surana, any cash gift or Diwali bonus received by an employee from the employer is treated as part of salary income under Section 17(1) of the IT Act. Such payments are fully taxable in the hands of the employee under the head “Income from Salary”.

The employer is also required to deduct tax at source (TDS) on the bonus amount in accordance with Section 192 at the time of payment.

In addition to cash bonuses, certain employers may provide non-cash Diwali gifts or perquisites such as vouchers, household items, or hampers. However, non-cash gifts worth over ₹5000 are not tax-free.

"As per Rule 3(7)(iv) of the Income-tax Rules, 1962, the aggregate value of gifts, vouchers, or tokens provided by the employer to an employee during a financial year is exempt up to ₹5000. Where the total value exceeds this limit, the entire value of such gifts or perquisites becomes taxable as a perquisite under the head “Salary,” said Dr Surana.

Therefore, while Diwali bonuses are always taxable as salary, minor festive gifts up to ₹5,000 per year may be enjoyed tax-free. Employers must include the value of taxable gifts and bonuses in the employee’s Form 16, and employees should ensure appropriate disclosure while computing their total income.