Before your Diwali gifting order goes through, someone in finance asks three questions. Is this taxable for the employee? How do we treat the GST? Do we deduct TDS on dealer gifts?
This guide explains the rules in plain language. We are manufacturers, not tax advisors. Confirm every point with your chartered accountant before you finalise the programme.
Rule 1: The ₹5,000 Limit on Employee Gifts
Under Rule 3(7)(iv) of the Income-tax Rules, 1962, gifts in kind from an employer to an employee are exempt up to ₹5,000 in aggregate in a financial year.
- Below ₹5,000 for the year: no tax for the employee.
- Above ₹5,000: the full value becomes a taxable perquisite in the employee's hands, added to salary income.
The limit covers all gifts in the financial year, not Diwali alone. If an employee received a ₹2,000 gift earlier in the year, a Diwali gift of ₹4,000 takes the total to ₹6,000.
What companies do: most cap staff hampers between ₹1,500 and ₹4,999 and track gifts per employee across the year.
Keep every hamper under ₹5,000. See the live per-hamper price in the builder →
Rule 2: GST on Gifts to Employees
Under Schedule I of the CGST Act, gifts from an employer to an employee worth up to ₹50,000 per employee in a financial year are not treated as a supply. For a standard Diwali hamper, no output GST applies on the gift itself.
Rule 3: Input Tax Credit Is Blocked on Gifts
Section 17(5)(h) of the CGST Act blocks input tax credit on goods given away as gifts. When you buy hampers to give away, you pay GST on the supplier's invoice and you do not claim it back.
What this means for your budget: plan on the GST-inclusive price, not the base price. Since the GST changes of 22 September 2025, dry fruits and nuts carry 5% GST, down from 12%. Bags, watches and electronics carry their own rates. Ask your supplier for a line-wise GST breakdown.
Rule 4: TDS on Gifts to Dealers and Business Partners
Section 194R requires TDS at 10% when the total value of benefits or perquisites given to a resident in business or profession crosses ₹20,000 in a financial year.
- This applies to dealers, distributors, agents and consultants running a business.
- The ₹20,000 threshold covers the full financial year, not one gift.
- Gifts to salaried employees fall under the perquisite rules above, not 194R.
A ₹6,000 Diwali hamper to a dealer who also received ₹15,000 in other benefits this year crosses the threshold.
Rule 5: Claiming Gifts as a Business Expense
Many companies claim gifts to employees, clients and dealers as a business expense under Section 37(1), when the spend serves a business purpose and records exist. Keep:
- The supplier's GST invoice
- A recipient list with names and addresses
- Dispatch and delivery records
Optima supplies a GST invoice in your company name and a recipient-wise dispatch record for every order.
Quick Reference
| Recipient | Key rule | Limit |
|---|---|---|
| Employee | Perquisite exemption, Rule 3(7)(iv) | ₹5,000 a year |
| Employee | Not a GST supply, Schedule I | ₹50,000 a year |
| Dealer or business partner | TDS at 10%, Section 194R | Above ₹20,000 a year |
| Any gift | Input tax credit blocked, Section 17(5)(h) | All gifts |
For budgets, timelines and gift ideas, read our complete corporate Diwali gifting guide and the best Diwali gifts for employees by budget.
Frequently Asked Questions
Is a Diwali gift taxable for employees?
Gifts in kind from an employer are tax-free up to ₹5,000 in aggregate per financial year under Rule 3(7)(iv). Above ₹5,000, the full value becomes a taxable perquisite.
Is GST input credit available on Diwali gifts?
No. Section 17(5)(h) of the CGST Act blocks input tax credit on goods given away as gifts. Budget the GST as part of the cost.
What is the GST rate on dry fruit hampers?
Since 22 September 2025, dry fruits and nuts carry 5% GST. Containers, bags and other items in the hamper carry their own rates.
Plan gifts your finance team signs off without questions. Build GST-invoiced Diwali hampers with Optima, priced per hamper, with recipient-wise dispatch records.
