The festival of lights has been largely implicated with seasonal greetings and gifting opportunities. Interestingly, the stint isn’t just limited to family members! Business organizations at every level also participate in this season of gifting, providing their employees with Diwali bonuses.
While the Diwali bonus is generally provided in cash, there are some companies that also provide the same in kind. Ultimately, it’s the employee’s prerogative to decide how they’ll be spending their bonus this year. But, what if we told you that there are taxation rules applied here as well?
Yes, when it comes to Diwali bonuses, there are certain income tax norms that need to be followed. And to save you from the confusion, we’ll be discussing the tax implications on them.
Here’s what the Taxation Rule says:
As per Rule 3(7)(iv) of the Income Tax Rules, if any worker is entitled to receive a Diwali present in different variety (hampers, vouchers, or token) that cross the total value of Rs. 50,000 or extra in a financial year, then the bonus value received is entitled to be accounted under the ‘salary’ section of their IT return.
On the contrary, if the total mix of hamper or remuneration received is lower than Rs. 50,000, it won’t be taxed.
What Taxation Rules are Applicable To The Diwali Bonus?
As per the provisions of the IT Act, cash incentives or bonuses received by any employee shall be chargeable under the ‘Income from Salary’ act. Further, it’d be subjected to tax as per the suggested slab rates.
How much does the Diwali Bonus attract tax?
As stated above, there’s no such limit on the sum of money received. The entire amount received as your Diwali Bonus is taxable under the applicable slab rate.
For instance, if you’re entitled to receive Rs. 1 Lakh as your Diwali bonus, the taxation in such a case would depend upon an employee’s total income. Talking about the accounting treatment for this bonus received, you’ll have to mention it under the ‘Income from Salary’ head and tax the sum at the rates applicable to the taxpayer. However, you’ll still be eligible to claim for standard tax deduction procedures under such conditions, or any other similar exemption and deduction, depending on the nature of investment or income.
Taxes Implied on Kind and Commodities
So you didn’t receive any cash remuneration as your Diwali Bonus? Well, congratulations! But, no matter if you’ve received a gold coin or a vehicle for that matter, it comes under the Income Tax slab.
How? Well, the concept is simple. As per the IT norms, gifts to the value of ₹50,000 are tax-free. However, if the limit is breached, the entire amount becomes taxable. For instance, the value of gold or a vehicle will be accounted as income tax in the financial year.
Can I save taxes on my Diwali Bonus?
Sadly, there’s no legal way to help you save taxes on the bonus received this Diwali. Except, if your employer gives you lower the taxable sum.
But, what if we told you that there was a way to increase the returns on your bonus? Yes, it’s possible if you think of investing it in multiple financial instruments. Therefore, if you plan on saving or investing the surplus money received, you might consider any of the suggested instruments for investment:
- Public Provident Fund
- Government Bonds
- Mutual Funds
- Foreign Stocks
- Pension Funds
- Equity Shares
Now You Know!
To sum it up, no matter the sum received, if it crosses a certain amount, your income will be taxable!