As the festival of Diwali draws closer, many employees eagerly await bonuses and gift cards as an expression of gratitude from their employers. Unfortunately, financial goodies have associated tax liabilities that cut down on their values. Not to worry, as there are ways to minimize your tax liability, and you do not have to suffer financial bites while celebrating this time with family and friends.
First and foremost, it is necessary to know how the tax treatment of bonuses and gift cards is done. The bonus money received by Indians from employers is included in the salary. They usually fall under the category of tax under the Income Tax Act. However, under certain exemptions and deductions, the overall taxable income is reduced.
Another solution against tax liability is salary structuring. There would be negotiations between the employees and the employer as regards what part of the bonus is best structured in terms of a benefit instead of cash for health insurance or retirement contributions. These benefits are either tax-exempt or qualify for deductions, thus reducing taxable income.
Gift cards are another area of goodwill, with tax implications. In case the value of all gift cards exceeds Rs 5,000 during the financial year, it is a taxable benefit. Another alternative could be to seek value under this limit or accept that non-cash gifts would usually not attract tax-that is, sweets and decorative items.
An excellent strategy is to exhaust the deductions under Section 80C, which gives deduction on investments made in specified financial instruments. Contributions towards PPF, NPS, or ELSS significantly reduce taxable income and balance out the rise in income due to bonuses.
Furthermore, any other expenses incurred in the process of doing your work, and which have a valid receipt, would also be admissible for deduction. These could, among others, include work-from-home setups, among other job-related expenses.
As the festive spirit grips the country, it is also a good time to know your tax obligations. Having an idea of what you need to pay in taxes ensures you can keep the maximum benefit you get from the bonus or gift cards. In addition, one can hire a tax advisor to tailor advice according to individual financial needs because they have more personal insights into such matters. With such considerations, you can enjoy Diwali with a healthy return on investment, focusing on the happiness and gaiety of the festival.
