Diwali is the one time of year when almost everyone gives and receives gifts: sweets and hampers from the office, cash and gold from relatives, gift cards from clients and vendors. Most of it is tax-free. Some of it isn't, and the rule that applies depends on who gave the gift, what it is and how much it is worth. From 1 April 2026, the rules sit in the new Income-tax Act, 2025 and the Income-tax Rules, 2026, and one important limit has gone up.
The quick answer
| Gift from | Taxed? |
|---|---|
| Your employer: hamper, voucher, gift card, sweets | Tax-free if the total for the year is below ₹15,000 (up from ₹5,000) |
| Your employer: cash or bank transfer | Taxable as salary, at any amount |
| Relatives (any amount) | Tax-free |
| Friends, clients, others | Tax-free if the total for the year is up to ₹50,000. Above that, the whole amount is taxable |
Gifts from your employer: the limit is now ₹15,000
Under the Income-tax Rules, 2026, gifts, vouchers and tokens given by an employer in kind are not taxed as a perquisite if their total value in the tax year is below ₹15,000. The earlier limit was ₹5,000 and had not changed for decades. The relief is available under both the old and the new tax regime.
- A Diwali hamper, a gift voucher, an e-gift card or a gadget all count towards the ₹15,000.
- Add up everything the employer gives you in kind during the year (Diwali, birthday, work anniversary), not just the Diwali gift.
- A cash gift or a "Diwali amount" credited to your bank account is salary, whatever the amount. It is taxed and goes through TDS like a bonus.
- If the total crosses the limit, expect the value to show up in your Form 130 (the new Form 16). Whether only the excess or the whole amount is taxed is still debated, so employers are being cautious.
Gifts from relatives: tax-free at any amount
Money, gold, shares or property received from a relative is not taxed, however large. The law has a fixed list of who counts as a relative:
- Your spouse
- Your brother or sister, and your spouse's brother or sister
- Your parents' brothers and sisters
- Any lineal ascendant or descendant (parents, grandparents, children, grandchildren) of you or your spouse
- The spouse of any of the people above
Cousins, friends, and your nephew or niece are not on the list. A gift from them falls under the ₹50,000 rule below. Your nephew giving you a gift is taxable above the limit, but you giving your nephew a gift is not, because you are his relative.
Watch the clubbing rule. A gift to your spouse is tax-free when given, but any income it earns (FD interest, rent, gains) is added to your income, not your spouse's. The same applies to gifts to a son's wife and to minor children.
Gifts from friends, clients and others: the ₹50,000 cliff
Gifts from anyone who isn't a relative are tax-free only if their total for the year is ₹50,000 or less. Above that, the whole amount is taxed at your slab rate, not just the part above ₹50,000.
Example: you receive ₹20,000 in cash from a friend and a ₹35,000 watch from a business associate this Diwali. The total is ₹55,000, so all ₹55,000 is taxable. Had the watch been worth ₹29,000, nothing would be taxed.
- Gifts received on your own wedding are fully exempt, from anyone.
- Gifts received under a will or by inheritance are exempt.
- Gold, shares and other assets count at their fair market value. Property counts at its stamp duty value.
Big cash gifts: a separate trap
Even if a gift is tax-free, you cannot receive ₹2 lakh or more in cash from one person in a day, in one transaction, or for one occasion. The penalty, equal to the amount received, falls on the person who receives the cash. There is no exception for relatives. Take large gifts by bank transfer, and keep a simple gift letter for amounts that may be questioned later.
If you run a business and give Diwali gifts
- Income tax: gifts to customers, dealers and staff are usually allowed as a business expense if they are for business purposes. Keep the invoices and a list of who received what.
- TDS on business gifts: if gifts or other benefits to one resident business contact (a dealer, distributor or doctor, for example) exceed ₹20,000 in a year, TDS at 10% applies. This was section 194R and now sits under section 393 of the new Act.
- GST: input tax credit is not available on goods given as gifts. If you claimed ITC on stock you later give away, it has to be reversed. Gifts to an employee up to ₹50,000 a year are not treated as a supply.
- Staff gifts: keep them in kind and under ₹15,000 per employee for the year if you want them tax-free in the employee's hands.
A short checklist for this Diwali
- Keep employer gifts in kind, and under ₹15,000 for the year.
- Add up non-relative gifts before you accept more. ₹50,001 makes the whole amount taxable.
- Never take ₹2 lakh or more in cash from one person, relative or not.
- Report taxable gifts under "income from other sources" in your return.
- Businesses: check TDS on gifts above ₹20,000 per contact, and reverse ITC on gifted stock.
How Vitt-Marg helps
We are in Sector 63, Noida. For individuals, we check whether a gift is taxable and report it correctly in your return. For businesses, we review Diwali gifting policies for TDS, GST and payroll before the gifts go out. See our income tax consultant services in Noida.
General information, current as of October 2026, not advice for a specific case. GST and income-tax rules change often — check with us before acting on it.