GST and Income Tax on Corporate Gifts in India: The 2026 Rules in Plain Language

Corporate gifting touches three taxes: GST when you buy the gift, income tax for employees who receive it, and TDS when the recipient is a business associate. The rules are simple once they are laid out, and 2026 brought two changes that many guides have not caught up with: a new Income-tax Act and a higher tax-free limit for employee gifts.

This guide explains each rule in plain language for HR, admin and finance teams planning Diwali or year-round gifting. It is general information, not tax advice. Confirm your specific case with your chartered accountant.

2026 at a glance - ITC on gifts: generally blocked, so treat GST as a cost. - Gifts to employees under GST: up to ₹50,000 per employee per year is not a "supply". - Tax-free limit for employees: ₹15,000 per year for gifts in kind and vouchers (up from ₹5,000), from 1 April 2026. - TDS on gifts to business associates: 10% when the yearly total crosses ₹20,000, now under section 393(1) (formerly 194R).

1. GST when you buy corporate gifts

When you buy gifts from a supplier, GST is charged on the tax invoice at the rate that applies to each product's classification. On our corporate gift store, product prices include GST: the price you see is the price you pay, and the GST invoice shows the tax inside it. Branding is quoted separately.

Keep the tax invoice in the company's name with its GSTIN. You need it for your books even though the credit is usually blocked (see below).

2. Can you claim input tax credit on gifts?

In most cases, no. Section 17(5)(h) of the CGST Act blocks input tax credit on goods "disposed of by way of gift or free samples". If you buy 200 Diwali gift sets for employees or clients, the GST on the invoice is a cost to the business, not a credit.

What this means for your budget: always plan gifts on a GST-inclusive basis. A ₹765 gift set costs ₹902.70 with 18% GST. Our Diwali gifts for employees under ₹1000 guide works through a full team example.

There are narrow exceptions. For example, items supplied under a contractual obligation, such as those included in an employment agreement or promotional schemes with conditions attached, may not be treated as gifts. Discuss these with your CA before assuming credit.

3. GST on gifts given to employees

Schedule I of the CGST Act treats certain transactions between related persons as supplies even without payment. Employers and employees count as related persons. However, the Schedule says gifts from an employer to an employee not exceeding ₹50,000 in value in a financial year are not treated as a supply.

So for Diwali gifts, joining kits and other employee gifts under ₹50,000 per person per year, there is no output GST on the transfer. The ITC on the purchase remains blocked.

4. Income tax for employees: the new ₹15,000 limit

The Income-tax Act, 2025 replaced the Income-tax Act, 1961 from 1 April 2026, together with the Income-tax Rules, 2026. One change matters for gifting:

• Gifts in kind and vouchers from an employer are tax-free for the employee up to ₹15,000 in a financial year. The earlier limit was ₹5,000.
• If the total goes above ₹15,000, the value is taxed in the employee's hands as a perquisite.
• Cash gifts are fully taxable as salary, whatever the amount.

For most corporate gifting this means employees pay no tax on a Diwali gift, a New Year diary and a work-anniversary gift combined, as long as the year's total stays under ₹15,000. Track the total per employee if you give several gifts.

5. TDS on gifts to dealers, distributors and clients

Gifts to people you do business with, such as dealers, distributors, agents, consultants and client representatives, are covered by the TDS rule on business benefits and perquisites:

• Old law: section 194R of the Income-tax Act, 1961.
• New law from 1 April 2026: section 393(1) of the Income-tax Act, 2025.
• Rate: 10% of the value of the benefit.
• Threshold: applies when the aggregate value given to a resident recipient in a financial year exceeds ₹20,000.

A single ₹1,500–₹3,000 Diwali hamper for a client is usually well below the threshold. The risk comes from adding up hampers, event hospitality and incentives for the same recipient during the year. Keep a simple register of what each business associate receives.

6. Is gifting a deductible business expense?

Gifts to employees and business associates are generally allowed as a business expense when they are incurred wholly and exclusively for business, for example as staff welfare or customer relationship expenses. Keep supporting documents:

• Tax invoices from the supplier
• The list of recipients (employees or business associates)
• The purpose, such as "Diwali 2026 staff gifts" or "client year-end gifts"
• Approvals under your internal gifting policy

7. A finance checklist for festive gifting

Budget examples at a glance

Prices are from our store in September 2026, before branding. Branding is charged separately and also attracts GST.

Sources and further reading

These rules come from the CGST Act, 2017 (section 17(5)(h) and Schedule I), the Income-tax Act, 2025 (section 393) and the Income-tax Rules, 2026. For official text, see the CBIC GST portal and the Income Tax Department. This guide was last reviewed in September 2026.

Once the tax side is clear, choosing the gift is the easy part. See the Diwali corporate gifts guide, browse the full corporate gift range or ask for a quote.