Received Diwali Bonus via cash, gift card, e-voucher, prepaid cards? Know how much income tax you will have to pay Further it is not always necessary to receive Diwali bonus in cash. There are multiple other avenues to receive Diwali bonus like e-voucher, gift card and pre-paid gift cards issued by banks. Know the income tax implications of receiving Diwali bonus through each of the instrumentsMany corporate and certain government employees would have received Diwali bonuses or gifts in different forms from their employers. A gift can be given in the form of cash, gift card, e-voucher and pre-paid cards. Some employers even give Diwali gifts in kind as well.
The gift received from an employer can be taxable depending on the form in which it is received.
Tax implications of Diwali BonusHere we look at how different forms of gift received from an employer are taxed.
Cash gifts: Any kind of cash gift received from employers is fully taxable in the hands of employees. However, there is no clarity among tax experts on how cash gifts from employer are taxed. Some tax experts opine that cash gifts are fully taxable without any tax exemption limit.
"Cash gifts from employers are considered taxable in the hands of employees and are categorized under the 'Salary' head of income for tax purposes. Notably, there is no minimum monetary threshold; this means that any amount of cash gift is subject to taxation in both the old and new tax regimes, says Neeraj Agarwala, partner, Nangia Anderssen India, a tax and business consultancy company.
"Any monetary gifts received from an employer will be treated as salary and subject to taxation. Therefore, cash received as a Diwali bonus shall be taxable in the hands of the employee without any monetary limit," says Rahul Singh, senior manager, research and advisory, Taxmann.
"Diwali bonus paid in cash to employees would be treated as regular salary and taxable in the hands of employees as per the Income-tax law. There is no tax exemption limit," says Amarpal S. Chadha, Tax Partner and Mobility Leader, EY India.
"In case of gifts received from employers in cash, no such aggregate limit is applicable. Cash gifts would be fully taxable without any limit of over Rs 5,000 value in a financial year," says Akhil Chandna, Partner, Grant Thornton Bharat.
However, other tax experts are of the opinion that cash gifts up to a certain limit are not taxable.
"Any cash paid by the employer as a gift is fully taxable if the aggregate value of all gifts provided by employer including cash gift exceeds Rs 5,000 per annum," says Preeti Sharma, Partner, Tax & Regulatory Services, BDO India.
Non-cash gift card: A gift card can be from a marketplace (Woohoo, Pine Perks, Amazon etc.) or a specific brand's gift card (Uber, H&M etc.). Regardless of the type of gift card received as Diwali bonus from employers, it is taxable if Rs 5,000 or more in value.
"In the case of non-monetary gifts such as gift cards they are treated as taxable perquisites under the 'Income from Salary' head. The value of any gift card, or voucher, or token given either to the employee or any member of his/her household by the employer is taxable if the aggregate value of such gifts is Rs 5,000 or more during a financial year," says Sharma from BDO India.
The benefit of tax-free perquisites for non-cash gifts from employers is available irrespective of whether the employee receiving them chooses the new or old tax regime.
However, only the amount exceeding the Rs 5,000 limit will be taxable in the hands of an employee.
Taxmann's Singh says, "Any amount surpassing Rs 5,000 in a financial year becomes taxable in the hands of the employee as perquisites under salary income." He explains this with an example. Suppose an employee received a gift card of Rs 4,500 during Diwali and Rs 1,000 gift card on his birthday from his employer. The aggregate amount of gift cards received by the employee during the year is Rs (4,500+1000) = Rs 5,500. Hence Rs 500 is taxable for the employee."
Non-cash e-vouchers: Sometimes, instead of gift cards, an employer may choose to give e-vouchers. The difference between an e-voucher and gift card is of tangibility, i.e., gift cards are physical vouchers while e-vouchers are always issued online.
Almost all e-vouchers issued are not redeemable in cash. There are many e-vouchers which are issued by different brands like Croma, Amazon, Flipkart, etc. and employees might receive them from their employers.
"Taxability of any award, voucher, e-voucher or tokens received by the employees from their employers, is covered under Section 17 of the Income-tax Act, 1961 read with Rule 3(7)(vi) of the Income-tax Rules, 1962," says Chandna.
"The Income-tax Act does not differentiate between e-vouchers and gift cards. Hence both instruments if received by an employee from their employer would become taxable if their value is over Rs 5,000 in a financial year," says Chandna.
If the e-voucher received is allowed to be redeemed for cash and they are redeemed for cash, then the tax treatment would be same as if cash gifts were given by employers.
Prepaid gift cards: Many companies give their employees prepaid gift cards issued by a bank on VISA/Mastercard/RuPay networks. These cards can be used online or offline stores. It must be noted that these prepaid gift cards cannot be used in an ATM machine to withdraw cash. It can only be used in point-of-sale (POS) terminal machines.
One notable difference between prepaid gift cards and branded gift cards is the network it is issued on. A gift card can be redeemed on brand-specific merchants (Croma, Reliance Digital, etc.). But a prepaid gift card -- issued by a specific card network like VISA/RuPay/Mastercard - can be redeemed anywhere wherever these networks are accepted by the merchants.
Opinions of experts are divided regarding the taxability of prepaid cards received by an employee from his/her employer.
"Any prepaid gift card issued by banks or others from employer to employee is akin to any gift provided in kind. If the value of all gifts provided by employer during the year exceeds the yearly threshold of Rs 5,000, the value of pre-paid card shall be taxable," says Sharma from BDO India.
"Any prepaid card received from the employer of a sum exceeding Rs 5,000 is treated as taxable compensation in the hands of the employees under the head of "Salary" according to the applicable tax slab of the employees," says Chandna from Grant Thornton.
"Prepaid cards provided by employers are categorized as taxable income under the 'Salary' head, regardless of the amount loaded on the card. These prepaid cards are considered cash equivalents that can be spent at will and may be used for offline spendings. They are taxable in both the old and new tax regimes. The tax-free limit of Rs 5,000 is not applicable in the case of prepaid cards," says Agarwala.
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This story originally appeared on: India Times - Author:Faqs of Insurances