Today employers are resorting to a series of innovative practices in a bid to step up their employee retention technique. In the wake of the high attrition rate, it is becoming increasingly difficult for employers to retain the pool of talent that they have taken so much trouble to select and train. Therefore, besides providing several benefits like pension, gratuity, etc to their employees they are also offering simple corporate gifts to workers as a token of recognition for the services rendered by them. However, these gifts cannot be technically considered to be a part of the individual income, as by definition it is not included within the employee “salary”. Let us discover, why it has been stated thus.

By definition (as per section 17(1) of the Income Tax Act) the salary of an individual constitutes of these components:

  • Gratuity
  • Pension or Annuity
  • Contribution of the Employer to a Recognized Provident Fund that exceeds the prescribed limit
  • Fees, commission or profits instead of salary
  • Compensation as a result of variation in service contract
  • Salary Advance
  • Compensation necessitated by any change in service agreement
  • The Central Government’s contribution to an employee account under a recognized pension scheme
  • Leave Encashment
  • Wages
  • Amount that has been transferred to recognized PF from an unrecognized PF.

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Therefore, it is clear from the list presented above, that corporate gifts like executive diaries, pens etc are not included within the taxable income of an individual. However, as in other countries the taxability on employee gifts may vary with the total worth of the gifts. The worthier presents in the form of flats or cars or any other expensive gadget might as well be subject to certain tax liabilities. The distribution of the gifts completely rests on the discretion of the company.

How important are Employee Gifts?

As already mentioned above, employee gifts ranging from pens, diaries to cars are meant to express your appreciation of the individual’s contribution to the company. While the major gifts (in the form of cars, flats etc) are crucially linked to the consistent performance of the employee over a period of years, the smaller gifts like diaries, pens, etc can be distributed on special occasions in order to keep up a feeling of goodwill among employees. At the end of the day, they know that their worth is duly recognized by the company. There is no need to shower them with ostentatious presents in order to win them over. Just a small token of appreciation with a few words of inspiration and motivation can work wonders. Therefore it is necessary that you, at least, make an initiative to distribute small presents personally on specific occasions, aside from providing usual benefits like awards, certification and other monetary allowances. Provision of facilities or gifts like accommodation, personal vehicles can keep the competition alive among those involved in the higher management level.