Gifts to employees are mostly a tax question. Gifts to directors and Key Managerial Personnel (KMPs) are also a governance question, because the same festive hamper can be remuneration, a conflict of interest or a threat to independence, depending on who receives it and from whom.
Gifts given by the company
- Remuneration. Benefits that a director or KMP receives from the company by virtue of the role can count as remuneration under the Companies Act. For managerial personnel, section 197 caps total remuneration, so recurring or valuable gifts should sit inside the approved package and the remuneration policy.
- Nomination and Remuneration Committee. Section 178 requires a policy on remuneration for directors, KMPs and other employees. A gifts and benefits policy should align with it.
- Independent directors. An independent director may receive sitting fees, reimbursement of expenses and approved profit-related commission, but no stock options (section 149(9)). For listed companies, the independence criteria under the LODR Regulations look at pecuniary relationships beyond remuneration. Valuable gifts to independent directors invite questions, so keep them nominal and documented.
- Related party angle (listed companies). The LODR definition of a related party transaction is wide: it covers a transfer of resources regardless of whether a price is charged. Customary gifts of small value are rarely treated as material, but check how your audit committee’s policy treats them.
- Disclosure. For managerial personnel, remuneration disclosures in the Board’s Report include perquisites. Gifts that are really perquisites belong there.
Tax treatment
- For directors on payroll, the Rule 15 limit of ₹15,000 applies and TDS is under section 392.
- For non-executive and independent directors, the right TDS provision for gifts in kind is not settled in the material I reviewed, so take specific advice.
- On GST, the ₹50,000 carve-out in Schedule I is worded for employer-to-employee gifts. For non-employee directors the position is unclear, so keep gifts modest and documented.
Gifts received by directors and KMPs
This is where governance risk is sharpest:
- Section 166(5) bars a director from achieving or attempting to achieve undue gain or advantage for himself, relatives, partners or associates. Gifts from vendors, customers or bidders can look like exactly that.
- Section 184 requires disclosure of interest where a director is concerned or interested in an arrangement.
- Codes of conduct. Listed companies must have a code for board members and senior management, and independent directors follow Schedule IV.
- Anti-bribery. Gifts to government officials raise Prevention of Corruption Act exposure and are a classic red flag in due diligence.
A Workable Policy
| Element | What to specify |
|---|---|
| Value caps | A nominal limit for gifts given and received, with a lower limit for directors who are independent |
| Register | Every gift over the limit logged with date, giver and value |
| Approval | Compliance officer or audit committee sign-off above the limit |
| Cash | Never allowed |
| Tax | Payroll treatment for perquisites; GST and withholding checked |
| Reporting | An annual summary to the audit committee |
Bottom line: A Diwali gift can be a perquisite, a related party question or a conflict of interest. A short, written gifts policy answers all three before someone asks.
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