🪔 Diwali 2026GSTITCIncome TaxGifting
🪔 Diwali 2026: GST and Income Tax on Gifts, Festival Expenses and Dhanteras Purchases
Sweets, hampers, vouchers, bonus and gold coins all carry tax consequences. Here is who pays what, where ITC is blocked, and what changed under the new Income-tax Act.
Diwali 2026Sun, 8 Nov
Dhanteras is Fri, 6 Nov
Dhanteras is Fri, 6 Nov
GST gift limit₹50,000
Per employee, per financial year
Per employee, per financial year
Tax-free employer gift₹15,000
Per tax year, up from ₹5,000
Per tax year, up from ₹5,000
Dealer giftsOver ₹20,000
10% TDS before you give
10% TDS before you give
📋 Table of Contents
GST on Diwali gifts, Every Diwali, businesses hand out gifts and buy assets on Dhanteras, and GST on Diwali gifts is where most mistakes happen. Three questions matter. Is GST payable on the gift? Can you claim input tax credit (ITC)? How do the giver and the receiver get taxed? One more thing is new this year: the Income-tax Act, 2025 and Income-tax Rules, 2026 took effect on 1 April 2026, so Diwali 2026 is the first festival under the new law.
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GST on Diwali Gifts to Employees (₹50,000 Limit)
1
The ₹50,000 rule. Employer and employee are related persons, so a free supply between them is normally a supply under Schedule I. The proviso carves out gifts not exceeding ₹50,000 in a financial year to an employee. All gifts to that employee in the year count together, not just the Diwali one.
2
Above ₹50,000. The gifts become a supply made in the course of business and are taxed at open market value. It is generally understood that the whole value is taxed, not only the excess.
3
Contractual benefits. CBIC Circular 172/04/2022-GST says perquisites given under the employment contract are not a supply. A gift that is a contractual right is treated differently from a voluntary one, so check the appointment letter.
4
ITC is blocked. Section 17(5)(h) denies credit on goods disposed of by way of gift, whatever the value. Some practitioners argue credit is available once the gift is taxed as a supply above ₹50,000. This is contested, so the safe course is to claim nothing.
💡 Example: 120 employees receive hampers worth ₹3,000 each (₹3.6 lakh in total). Each is under ₹50,000, so no output GST arises. The GST paid on purchase is a cost. Treat it as expense and do not claim ITC.
3
GST and ITC on Diwali Gifts to Customers and Dealers
1
Truly free gifts. GST needs a supply for consideration. A gift to an unrelated person with nothing in return is generally not a supply. If the recipient is a related person or a distinct person, Schedule I can apply.
2
ITC is blocked under Section 17(5)(h) on goods given as gifts or free samples.
3
Gifts tied to sales. If the freebie comes with a purchase (“buy a sofa, get a lamp”), it is part of a composite or mixed supply and GST is charged on the whole price. That is not an unconditional gift, so the gift block is generally not triggered.
4
Gift hampers are mixed supplies. The whole hamper is taxed at the rate of the highest-rated item, so one item can change the hamper’s rate.
⚠️ Rates reflect the 22 September 2025 reforms. Confirm the rate for each item before you place a bulk order.
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ITC on Diwali Festival Expenses
5
GST on Dhanteras Gold and Asset Purchases
🪙
Gold and silver bought for personal use carry 3% GST. There is no ITC for personal use. Cash receipts of ₹2 lakh or more are not permitted, and PAN rules apply to large jewellery purchases.
💻
Business assets such as laptops, printers and ACs bought with a GST invoice are eligible for ITC if used for business. See our BBD 2026 ITC guide.
🚗
Cars are blocked under Section 17(5)(a) unless used for specified purposes such as resale, transport or training. Check the 40% slab for larger cars.
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Depreciation: the asset’s cost excludes GST for which you claim ITC. If ITC is blocked, the GST becomes part of the cost.
6
Income Tax on Diwali Gifts, Bonus and Vouchers
📌 New Act, new numbers. From 1 April 2026 the Income-tax Act, 2025 and Income-tax Rules, 2026 replace the 1961 Act and 1962 Rules. Section numbers have changed. This post gives the old section alongside the new one where I am sure of it.
🏢 The employer
- Gifts and bonus are deductible as business or employee costs if wholly for business.
- Gifts to employees: employees are taxed as below. Deduct TDS on salary if the perquisite is taxable.
- Bonus is deductible when paid. If unpaid at year end, pay by the return due date.
- Cash payments over ₹10,000 a day to one person risk disallowance. Pay by bank.
- Freebies to doctors are not deductible and also attract TDS rules.
👤 The employee
- Under Rule 15 of the Income-tax Rules, 2026, gifts, vouchers or tokens are tax-free if the total in the tax year does not exceed ₹15,000 (it was ₹5,000).
- Above that, the entire value is taxable as a perquisite, not only the excess.
- Cash gifts and Diwali bonus are taxable salary.
- The new limit applies from tax year 2026-27, so a Diwali 2026 gift qualifies.
🤝 Dealers and business associates
- Section 194R (now Section 393(1)): 10% TDS on benefits or perquisites to residents, if the total in a financial year exceeds ₹20,000.
- TDS must be deducted before the benefit is given. If the benefit is wholly in kind, the giver pays the tax first.
- Individuals and HUFs under ₹1 crore (business) or ₹50 lakh (profession) turnover are exempt from deducting.
🎁 Gifts received from others
- Gifts from relatives are exempt.
- From non-relatives, the total above ₹50,000 in the year is taxable as income from other sources.
- A gift received in a professional or business capacity is taxed as business income.
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Worked Example: Employer Vouchers – GST on Diwali gifts
💡 Had the total stayed at ₹15,000 or less, the perquisite would have been nil. A single extra gift can cost the employee tax on the whole amount.
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Diwali Gift Compliance Checklist-GST on Diwali gifts
1
Keep a gift register per employee for the full financial year.
2
Keep each employee under ₹50,000 for GST and ₹15,000 for income tax.
3
Do not claim ITC on gifts, sweets, hampers or party catering.
4
For dealers and distributors, check the ₹20,000 threshold and deduct TDS before giving.
5
Pay by bank or UPI, not cash, and keep invoices.
6
Include taxable perquisites in salary TDS and in the employee’s Form 130.
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Frequently Asked Questions- GST on Diwali gifts
Is GST payable on Diwali gifts to employees up to ₹50,000?
GST on Diwali gifts, No. Gifts not exceeding ₹50,000 in a financial year to an employee are not treated as a supply. The purchase GST is still not creditable.
Can I claim ITC on sweets and gifts?
No. Section 17(5)(h) blocks credit on goods given as gifts or free samples. GST on Diwali gifts
Is the Diwali bonus taxable?
Yes. It is salary, taxable in the employee’s hands, and the employer deducts TDS on it. GST on Diwali gifts
Do I deduct TDS on gifts to dealers?
Yes, if the total benefits to a dealer in the year exceed ₹20,000 (10%, Section 393(1), earlier 194R), subject to the small-turnover exemption.
What changed in 2026?
The tax-free limit for employer gifts and vouchers rose from ₹5,000 to ₹15,000, and the Income-tax Act, 2025 renumbered the sections.
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Key Takeaways – GST on Diwali gifts
🎁 No ITC on gifts, whatever their value.
📏 ₹50,000 is the GST limit, ₹15,000 is the income-tax limit.
🤝 Dealer gifts above ₹20,000 need 10% TDS first.
🧺 Hampers are taxed at the highest rate in the box.
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Disclaimer: This post is for general information, reflects the law as on 15 October 2026 and is not tax advice. Rates, circulars and section numbers can change. Please consult a qualified CA before acting.
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