Corporate Diwali Gifting 2026: GST, TDS Rules and Budget Ideas

If your business gives Diwali gifts, three tax rules decide what it really costs you: GST input tax credit is blocked on goods given away as gifts, gifts to an employee worth up to Rs 50,000 a year are not treated as a “supply” under GST, and gifts to dealers, distributors or business clients worth more than Rs 20,000 in a year attract 10% TDS. This guide explains each rule in plain language, adds the new Rs 15,000 income-tax limit for employee gifts, and gives you budget ideas and a gifting policy template you can adapt.

Updated October 2026. This article explains general rules for small businesses and is not tax advice. The new Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026, and section numbers have changed. Check the latest position with a chartered accountant.

Quick Answer: Tax Treatment by Who Gets the Gift

Recipient	GST input tax credit on the gift	GST on giving the gift	Income tax / TDS
Employee, gift in kind up to Rs 50,000 a year	Blocked under section 17(5)(h)	Not a supply under Schedule I, so none	Nil perquisite if total gifts and vouchers are within Rs 15,000 in the tax year; taxable as salary above that
Employee, gift above Rs 50,000 a year	Depends on facts; ask your CA	Treated as a supply, so GST may be payable	Taxable perquisite, TDS through salary
Employee, cash gift	Not applicable	Not applicable (money is not goods or services)	Fully taxable as salary
Dealer, distributor, business client	Blocked under section 17(5)(h)	Generally no GST if truly free and not to a related person	10% TDS once total benefits cross Rs 20,000 in the year
Retail customer (free gift with no conditions)	Blocked under section 17(5)(h)	Generally none	Usually not relevant

GST Rule 1: No Input Tax Credit on Gifts

Section 17(5)(h) of the Central Goods and Services Tax Act blocks input tax credit (ITC) on goods “lost, stolen, destroyed, written off or disposed of by way of gift or free samples”. You can read the Act on the CBIC GST Acts page.

In plain terms, the GST printed on the invoice for your Diwali hampers is a cost, not a credit. Many small businesses get this wrong by claiming ITC on everything bought in October.

Worked example

For example, a Pune-based packaging firm buys 100 gift boxes at Rs 1,500 each for clients. Say the supplier charges GST at 18% (the actual rate depends on what is in the box, and many food items carry a lower rate). The invoice is Rs 1,50,000 plus Rs 27,000 GST, a total of Rs 1,77,000.

• The firm cannot claim the Rs 27,000 as ITC, because the boxes are given away as gifts.
• The real cost of the gifting budget is Rs 1,77,000, not Rs 1,50,000.
• If the firm had already claimed ITC (for example, because the items came from regular stock), it needs to reverse that credit.

Use a GST calculator to work out the tax on each option before you fix your per-person budget.

Gifts from your own stock

If you are a dry fruit trader, a sweet shop or a kitchenware brand and you gift your own products, the same rule applies. You likely claimed ITC on the inputs when you bought or made them. The credit relating to items given away as gifts should be reversed. Keep a simple stock register showing what left the godown as gifts.

GST Rule 2: The Rs 50,000 Employee Gift Limit

Normally, a transaction without payment is not a “supply” under GST. Schedule I of the CGST Act lists exceptions, and one of them is supply between related persons, which includes employer and employee. The proviso to that entry says gifts not exceeding Rs 50,000 in value in a financial year by an employer to an employee are not treated as a supply.

• Up to Rs 50,000 per employee per financial year: no GST on giving the gift. ITC on buying it is still blocked under section 17(5)(h).
• Above Rs 50,000: the gift can be treated as a supply, and GST may be payable on its value. The credit position changes too. Speak to your CA before giving high-value gifts such as gold coins, phones or two-wheelers.
• Count all gifts in the year, not only Diwali. A wedding gift in June and a Diwali gift in November add up.

Income Tax Rule: Rs 15,000 Limit for Employee Gifts

This is the change most businesses have not noticed yet. Under the Income-tax Rules, 2026, notified by CBDT on 20 March 2026, the value of gifts, vouchers or tokens an employer gives an employee is treated as nil if the total in the tax year does not exceed Rs 15,000. The earlier limit was Rs 5,000. KPMG’s summary of the new rules covers this and other perquisite changes.

• It is a threshold, not a deduction. Several advisers read it as a cliff: if the total goes above Rs 15,000, the whole amount may become taxable. Keep your total per employee within the limit if you want it tax-free.
• Cash is different. A cash Diwali gift is taxable as salary, and you should run it through payroll with TDS.
• Diwali bonus is salary, not a gift. It goes through payroll in the normal way.

Example

Suppose a Jaipur design studio gives each of its 12 employees a Rs 4,000 sweets-and-dry-fruit hamper and a Rs 6,000 shopping voucher this Diwali. That is Rs 10,000 per person. If no other gifts are given in the 2026-27 tax year, the value is within Rs 15,000 and should be treated as nil for income tax. GST-wise, the hampers are well under the Rs 50,000 limit, so no GST is payable on giving them, but the studio cannot claim ITC on what it paid.

TDS on Gifts to Dealers, Distributors and Clients

Section 194R of the Income-tax Act, 1961 required anyone providing a benefit or perquisite to a resident in connection with their business or profession to deduct 10% TDS if the value crossed Rs 20,000 in a financial year. From 1 April 2026, the Income-tax Act, 2025 has replaced the 1961 Act and tax practitioners report that this provision now sits under section 393(1), with the same 10% rate and Rs 20,000 threshold. Confirm the exact section and form codes with your CA before filing.

How it works in practice

1. Track every benefit per recipient for the year: Diwali gifts, dealer trips, incentive gold coins, free products beyond normal trade discounts.
2. Once the total crosses Rs 20,000 for one dealer or client, TDS at 10% applies on the value of benefits.
3. Gifts in kind do not leave cash from which to deduct tax, so the giver must make sure the tax is paid before the gift is handed over. Many businesses pay the TDS themselves and treat it as part of the gifting cost.
4. Deposit and report the TDS in your quarterly return, and give the recipient a TDS certificate so they can claim credit.

Under the old section 194R, individuals and HUFs whose turnover was within the tax audit limits (Rs 1 crore for business, Rs 50 lakh for profession) in the previous year did not have to deduct. Check whether the same exemption continues under the new Act for your case.

Example

For example, a Rajkot pump maker gives a top distributor a Rs 15,000 Diwali hamper and, earlier in the year, a Rs 12,000 hotel stay at a dealer meet. Total benefits: Rs 27,000, which crosses Rs 20,000. TDS of Rs 2,700 (10%) applies. Since both were given in kind, the company would typically pay the Rs 2,700 itself and report it.

Diwali Gift Budget Ideas by Tier

Good corporate gifts are useful, consumable or locally made, and carry a short handwritten note. For more ideas by price, see our list of Diwali gift ideas under Rs 500, 1,000 and 5,000.

Budget per person	Employees	Clients and partners
Under Rs 500	Box of mithai or dry fruits, decorative diyas, a plant	Handmade diya set with a card, small dry fruit box
Rs 500 to Rs 1,500	Insulated bottle, cotton towels, organic tea or coffee hamper	Desk plant with planter, artisan candles, premium dry fruits
Rs 1,500 to Rs 5,000	Cookware, steel or copper bottles, shopping voucher	Brass or copper decor, regional craft items, gourmet hamper
Rs 5,000 and above	Small electronics, experience voucher (keep within Rs 15,000 a year in total)	Premium crafts or experiences; track the Rs 20,000 TDS limit

Ideas that tend to work well

• Products from local artisans or self-help groups in your city, with a card telling their story.
• Consumables people actually finish: dry fruits, tea, coffee, sweets from a well-known local mithai shop.
• Useful items with subtle branding (a small logo, not a big one).
• Plants with care instructions.
• For remote teams, delivery-friendly hampers ordered early to beat the courier rush.

Avoid alcohol, anything that clashes with dietary or religious practices, and items that may be seen as a bribe, such as expensive gifts to government officials or to employees of a client company with a strict gift policy.

Diwali Gifting Policy Template

A one-page policy saves arguments and keeps the tax paperwork clean. Copy and adapt this.

1. Purpose: “[Company] gives festival gifts to employees and business partners to thank them for their contribution. Gifts are tokens of appreciation, not rewards for any specific business decision.”
2. Budget: “Employee gifts: up to Rs [X] per person per year in total. Client and partner gifts: up to Rs [Y] per person per year. Any gift above these limits needs approval from [Founder/Director].”
3. Tax limits to watch: “Finance will keep the total of gifts and vouchers per employee within the income-tax limit (currently Rs 15,000 a year) unless approved, and will track benefits to each business contact against the Rs 20,000 TDS threshold.”
4. Who cannot receive gifts: “No gifts to government officials. For clients whose policies restrict gifts, send a card only.”
5. Purchasing: “All gifts are bought on invoices in the company’s name with GSTIN. ITC will not be claimed on gifts.”
6. Records: “Finance keeps a gift register: recipient name, PAN for business contacts, item, value and date.”
7. Receiving gifts: “Employees who receive gifts above Rs [Z] from vendors must report them to [manager].”
8. Review: “This policy is reviewed every year before the festive season.”

Paperwork Checklist Before You Buy

• Get a proper tax invoice in the company’s name. See our GST invoice format guide for what it should show.
• Book the purchase as gift or business promotion expense, not stock.
• Do not claim ITC on the gift invoices in GSTR-3B; reverse it if already claimed.
• Maintain the recipient-wise gift register with values.
• Collect PAN for dealers and business contacts who may cross the Rs 20,000 TDS limit.
• Tell payroll about vouchers and gifts to employees so the Rs 15,000 limit is tracked.

Common Mistakes

• Claiming ITC on hampers because “everything bought in October is business purchase”.
• Ignoring the TDS limit on a top distributor who also went on the dealer trip.
• Giving cash in an envelope and not running it through payroll.
• Assuming the old Rs 5,000 employee gift limit still applies, or that Rs 15,000 is a deduction from a bigger gift.
• Buying from unregistered sellers without invoices, then struggling to prove the expense.

Frequently Asked Questions

Can I claim GST input tax credit on Diwali gifts?

Generally no. Section 17(5)(h) of the CGST Act blocks ITC on goods disposed of by way of gift or free samples. Treat the GST as part of the gift’s cost.

Is GST payable on gifts to employees?

Not if the gifts to one employee stay within Rs 50,000 in a financial year. Schedule I of the CGST Act says such gifts are not treated as a supply. Above that, GST may apply.

What is the tax-free limit for Diwali gifts to employees in 2026?

Under the Income-tax Rules, 2026, gifts, vouchers and tokens from an employer are valued at nil if they total up to Rs 15,000 in the tax year. Cash gifts are taxable as salary.

Do I need to deduct TDS on Diwali gifts to dealers?

Yes, if the total value of benefits you give one dealer in the year crosses Rs 20,000. TDS is 10%. This came from section 194R and is now covered by the Income-tax Act, 2025. Ask your CA about the exact section and filing codes.

Is a Diwali gift voucher taxable for employees?

Vouchers count towards the Rs 15,000 annual limit along with gifts in kind. If the total stays within that limit, the value is nil for tax. Above it, it may become taxable salary.

Can I gift sweets to clients without any tax issues?

Yes, in most cases. You cannot claim ITC on the purchase, and you should keep the invoice. If one client receives more than Rs 20,000 of benefits in the year, TDS rules apply.

Give Generously, Document Carefully

Diwali gifts build goodwill only if they do not create tax headaches later. Set a per-person budget, include GST as a cost, keep employees within the Rs 15,000 income-tax limit and the Rs 50,000 GST limit, and track business contacts against the Rs 20,000 TDS threshold. Write a one-page policy, keep a gift register, and share both with your CA before you place the orders.