Diwali Bonus 2021 Income Tax Rules: If an employee receives a Diwali gift in kind (vouchers/hampers/token) and the aggregate value of such kind is Rs. 5,000 or more in a FY, then the same shall be subject to tax as a perquisite under the head ‘Salary’.
Most of the companies offer Diwali Bonus to their employees. The Bonus is generally provided in cash. Some companies also provide Diwali Bonus in kind. While it is the employee’s prerogative to decide on how to spend or use the Diwali Bonus, it is important to be aware of the income tax rules that apply to the bonus provided by the employer. In an email interaction with FE Online, Dr Suresh Surana, Founder, RSM India, explained the various tax implications on Diwali Bonus received by employees from their employers. Excerpts:
What are the tax rules that apply to Diwali Bonus?
As per the provisions of IT Act, Bonus received by an employee in the form of cash shall be chargeable to tax under ‘Income from Salary’ and the same would be subjected to tax in accordance with the slab rates.
How much Diwali Bonus attract tax?
As stated above, the whole amount received as Diwali Bonus will be taxable at the slab rate applicable to the employee.
How much tax an employee will have to pay if receiving Rs 1 lakh as a Diwali bonus?
The taxation of the bonus would depend upon the Total Income of the Employee. The Diwali bonus would be taxable under the head ‘Income from Salary’ and taxed at the slab rates applicable to the taxpayer. However, against such bonus, the taxpayer would be eligible to claim Standard deduction of salary, any other deduction and exemption depending on the nature of income and investments.
Will I have to pay tax if receiving the Diwali bonus in kind, and not in cash?
As per Rule 3(7)(iv) of the IT Rules, if an employee receives a Diwali gift in kind (vouchers/hampers/token) and the aggregate value of such kind is Rs. 5,000 or more in a FY, then the same shall be subject to tax as a perquisite under the head ‘Salary’. If, the aggregate amount of kind is less than Rs. 5,000, the same will be exempt from tax. It is pertinent to note that in case the threshold is crossed, the entire amount received would be subjected to tax.
How much tax will I have to pay if my company offers a gold coin or a car as a Diwali bonus?
The taxation rules on gold coin or car as Diwali bonus is as discussed above
Are there ways to save tax on Diwali Bonus?
No there are no specific tax deductions available on bonus received, except for the limits as discussed above.
What are some of the best ways in which one should invest Diwali bonus?
In today’s date, there are many financial instruments where a person can Invest his/her surplus funds. Some of the most popular investment options are as follows:
1. Government Bonds
2. Public Provident Fund
3. Pension Funds
4. Mutual Funds
5. Equity Shares / Debentures / Foreign Stocks
Apart from this, a few other points that an individual must consider are his/her risk appetite, required rate of return, time horizon, availability of funds, transaction costs, etc. in order to choose the best investment option.