When a Diwali gift becomes taxable income: relatives, friends, employers and spouses explained

Under the Income-tax Act, 2025, gifts from relatives are tax-free, money from others is taxed in full above Rs 50,000 a year, and employer gifts have a Rs 15,000 threshold. Clubbing for spouses explained.

A Diwali gift can become taxable income in the hands of the person who receives it, but only in certain cases. Under the Income-tax Act, 2025, which replaced the Income-tax Act, 1961 from 1 April 2026, the answer turns on who gave the gift, what it was, and how much the receiver has been given in the tax year.

Gifts from relatives are outside the charge, with no upper limit. Gifts of money from everyone else are taxed in full once they add up to more than Rs 50,000 in the year, and an employer's gift or voucher has its own threshold of Rs 15,000.

Which law applies to Diwali 2026

The Income-tax Act, 2025 (Act 30 of 2025) governs income from 1 April 2026, which is tax year 2026-27. Gifts received in the Diwali week of November 2026 fall in that year, and are added to everything else received since 1 April 2026.

The charge on gifts is in section 92, the successor of section 56(2)(x) of the 1961 Act. The Act taxes the receiver, not the giver, and the amount is added to total income under the head Income from other sources.

There is no separate gift tax. The Gift-tax Act, 1958 appears in the 2025 Act only as it existed before its repeal.

Gifts from relatives are not taxed

Section 92(3)(a) excludes any money or property received from a relative. There is no cap, and no requirement that the gift be tied to an occasion.

For an individual, section 92(5)(g) lists the spouse, a brother or sister, the spouse's brother or sister, and a brother or sister of either parent. It adds any lineal ascendant or descendant, maternal as well as paternal, and any lineal ascendant or descendant of the spouse. The spouse of anyone in the second to sixth of those groups also counts.

For a Hindu undivided family, any member of the family is a relative. A cousin, a friend, a neighbour or a colleague is not on the list.

The definition looks outward from the person receiving the gift. On its text, a nephew or niece does not appear in the list for an uncle or aunt, even though the uncle or aunt appears in the list for the nephew or niece.

Gifts from friends and other people

Under section 92(2)(m)(i), if a person receives money without consideration from any person or persons in a tax year, and the total exceeds Rs 50,000, the whole sum is taxable. It is not only the part above Rs 50,000.

The clause applies to sums received without consideration, so a payment for work done or goods sold is not a gift within it. The test counts every such gift in the tax year together, so Rs 30,000 from one friend and Rs 25,000 from a neighbour makes Rs 55,000 taxable.

The Act does not make Diwali an exception. The exclusions in section 92(3) cover relatives, the individual's own marriage, a will or inheritance, a gift in contemplation of death, local authorities, registered non-profit organisations and certain trusts, but not festivals.

Gifts in kind, gold and vouchers

For property other than immovable property, section 92(2)(m)(iii) taxes the whole fair market value when the aggregate value of property received without consideration exceeds Rs 50,000. Immovable property received without consideration is taxed at its stamp duty value if that exceeds Rs 50,000.

The Act defines property as a closed list of capital assets: land or buildings, shares and securities, jewellery, archaeological collections, drawings, paintings, sculptures, works of art, bullion and virtual digital assets. A gold coin or silver bar, a necklace or a painting is on that list.

Items that are not on the list, such as sweets, dry fruit, clothes, appliances or a phone, are outside the clause on its text. Money is tested separately, under clause (i).

The provision does not mention vouchers or gift cards, so its text does not say whether a voucher is money. It also reaches a purchase at a discount: property bought for less than its fair market value by more than Rs 50,000 is taxed to the extent of the shortfall.

Gifts and vouchers from an employer

An employer's cash Diwali bonus is not a gift under section 92. Section 15 charges salary due or paid in the tax year, and section 16 includes wages and any profits in lieu of, or in addition to, salary.

A non-cash gift, a voucher or a token given instead of a gift is treated as a perquisite. Section 17(1)(e) covers any other benefit or amenity that is prescribed, and the Income-tax Rules, 2026 prescribe the value in rule 15(5)(a), Table IV, serial 4.

The value is nil if the gift, voucher or token is below Rs 15,000 in aggregate during the tax year. The rule covers gifts received by the employee or a member of the household, on ceremonial occasions or otherwise, and the earlier limit was Rs 5,000.

The rule says below, so a total of exactly Rs 15,000 is not below the limit. Where the aggregate is not below it, the rule gives the value as the sum equal to the amount of the gift, and does not say only the excess is counted.

Gifts between spouses and clubbing

A gift from a husband to a wife, or the reverse, is from a relative, so the receiver pays no tax on it. The income that the gifted asset later earns is a different matter.

Section 99(1)(a)(ii) adds to a person's total income the income arising to the spouse from assets the person transferred without adequate consideration. Interest on a sum gifted to a spouse, or rent from a gifted property, is therefore taxed in the giver's hands.

Section 99(1)(b) applies the same rule to a daughter-in-law. Under section 99(1)(c), income of a minor child is included in the hands of the parent with the higher income, but not income from the child's own work or skill, or where the child has a disability of the kind in section 154.

A separate formula in section 99(2) applies where the spouse invests the gifted asset in a business or a firm. Clubbing applies to income, so it does not change the tax-free position of the gift itself.

Tax year 2026-27 ends on 31 March 2027. Money received from anyone other than a relative between 1 April 2026 and that date is counted together against the Rs 50,000 threshold, and an employer's gifts and vouchers in the same period are counted together against Rs 15,000.