How to use gift cards to manage spending and save tax

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• Gift vouchers from employers are tax-free up to Rs 5,000 yearly
• Draft rules may raise the tax-free gift voucher limit soon
• Gift cards help cover routine expenses like groceries and fuel

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Most people think of gift cards as something you get during Diwali or a birthday. But in many companies, they are also used as a small employee perk. When used properly, they can help cover routine expenses and even shave a little off your tax bill.

Under current income tax rules, gift vouchers given by an employer are tax-free up to Rs 5,000 in a financial year. In simple terms, if your company gives you gift cards worth Rs 5,000, that amount does not get added to your taxable salary.

If the same Rs 5,000 came to you as part of your salary, it would be taxed according to your income slab. For someone in the 30 percent tax bracket, that means roughly Rs 1,500 in tax. So the saving is small, but it is still money that stays in your pocket.

Some companies distribute these vouchers during festivals, while others use them as small rewards during the year. They may come as Amazon or multi-brand vouchers, supermarket cards or prepaid cards that work across several merchants.

Where gift cards become practical is in everyday spending.

Many people end up using them for things they were going to buy anyway. Groceries, fuel, household supplies or small online purchases are common uses. Instead of dipping into your bank balance for these expenses, the voucher covers part of the bill.

Some employees even plan their spending around these cards. For example, if you receive a grocery voucher, it can cover a week or two of supermarket shopping. A fuel card can take care of petrol expenses for a few trips.

There may also be some changes ahead. Draft income-tax rules recently proposed increasing the tax-free limit for employer-provided gift vouchers beyond the current Rs 5,000 cap. The proposal is still under discussion, but if it is eventually adopted, employees could receive higher-value vouchers without the amount being treated as taxable income.

Of course, there are a few things to be aware of. Gift cards often have a six-month to one-year expiration date. The balance may just lapse if you don't spend them before then.

They also cannot usually be converted to cash, and some cards work only with specific brands or platforms.

Gift cards are therefore not a significant tax planning tactic. However, it is still an easy approach to receive a little tax relief while covering regular expenses provided your company offers them within the tax-free level. In reality, the majority of people use them mindlessly for things like groceries, gas, or internet shopping, which is precisely what makes them beneficial.