Diwali gifts and shopping: What you can claim and what is taxable

Diwali Gifts Taxable: Here's a guide on which Diwali gifts and shopping expenses qualify for deductions and which don't

Diwali is not just a festival of lights, it’s also a season of heavy spending. From gifting relatives and employees to decking up homes with new gadgets, the festive shopping spree can quickly dent your wallet. But when it comes to tax benefits, not all that glitters is gold. Understanding what qualifies for deductions can help you plan your festive finances without running afoul of the Income Tax Department.

 

Personal purchases don’t count as Taxable on Diwali

Many taxpayers assume that buying gold, electronics, or home appliances during Diwali can help reduce their tax liability. Experts are clear, this is a misconception.

 

 

“Personal Diwali purchases, whether gold, gadgets, or home décor, do not qualify for any deduction,” says Niyati Shah, chartered accountant, vertical head, personal tax, 1 Finance.  She adds that only expenses directly linked to business or professional activities can be claimed under the Income Tax Act.

 

Similarly, Chandni Anandan, chartered accountant, tax expert at ClearTax, explains, “Gifts to family or friends are not deductible. Only business-related gifts, festive bonuses, or hampers given to employees or clients are considered for deductions, under Section 37(1).”

 

Who can claim what?

According to the experts, the rules vary depending on whether you’re a salaried employee, self-employed professional, or running a business:

 

·  Salaried individuals: Minimal scope. Employer-provided gifts up to Rs 5,000 per employee per year are tax-free under Section 17(2) read with Rule 3. Any excess is taxable as salary. Personal festive purchases have no tax benefit.

 

·  Self-employed professionals: Can claim deductions for client gifts, hampers, or business-related festive events under Section 37(1), provided proper invoices and documentation exist.

 

·  Businesses: Expenses for employee bonuses, corporate Diwali events, or gifts to clients are allowed if they are reasonable and supported with records. Non-compliance, such as failing to deduct TDS under Section 194R on client gifts above Rs 20,000, can lead to partial disallowance and penalties.

 

Common mistakes to avoid Tax

Experts warn of several pitfalls:

 

·  Treating all festive spending as deductible.

 

·  Claiming personal gifts as business expenses.

 

·  Missing documentation such as invoices, recipient lists, or payment proofs.

 

·  Exceeding cash limits (over Rs 10,000 per transaction under Section 40A(3)) for business expenses.

 

“Tax authorities scrutinise vague or lavish festive expenses. Proper documentation and a clear business purpose are essential,” cautions Suresh Surana, chartered accountant.

 

Shah explains two cases from her experience 

 

·  A boutique owner gifts her clients Rs 4,000 each and employees Rs 5,000 each during Diwali. She keeps invoices and a payroll register. At assessment, all expenses are fully allowed under Section 37(1) because they served a clear business purpose.

 

·  A salaried consultant buys gold for relatives, and attempts to claim it as a business expense. The claim is rejected, and he receives a notice for improper deductions.

 

A small business owner who gifts clients and employees and maintains proper invoices can fully claim the expense as a business deduction under Section 37(1). Conversely, a salaried employee buying gold or appliances for relatives cannot claim a deduction and may even face assessment scrutiny if attempted.

 

The key is clarity, only expenses with a clear business or professional purpose, reasonable in value, and properly documented are eligible for tax benefits. Plan wisely, and your Diwali spending can bring festive joy without tax surprises.