Is Your Employer Legally Bound to Give You a Diwali Vacation? Decoding India’s Festival Holiday Laws

 

As Diwali approaches, a familiar question returns to offices, factories, and shops across India: “Is Diwali a compulsory paid holiday?” The answer is not a simple yes or no. It depends on State legislation, the employment contract, company policy, and established workplace custom.

The short answer is that no single central statute mandates Diwali as a compulsory paid holiday for all private-sector employees. However, an employer may still be legally obliged to grant a paid Diwali holiday under one or more of the following: the applicable State National and Festival Holidays Act, the State Shops and Establishments Act, the employment contract or HR policy, or a long-standing customary practice.

The Central Framework: Why Parliament Does Not Mandate Diwali

The four central Labour Codes, which took effect on 21 November 2025 after rationalising 29 erstwhile central labour statutes, govern the core of India’s employment law. While the Occupational Safety, Health and Working Conditions (OSHWC) Code, 2020 (which repealed and replaced the Factories Act, 1948) comprehensively regulates working hours, weekly rest days, overtime, and annual earned leave, neither the old Factories Act nor the OSHWC Code creates a central statutory right to a Diwali holiday. The festival holiday calendar is left to State-level regulation.

This division of power exists because labour falls under the Concurrent List of the Seventh Schedule to the Constitution of India (List III, Entries 22, 23, and 24), empowering both Parliament and State Legislatures to enact laws. Because cultural and regional observances vary widely across India, Parliament has left the regulation of regional and festival holidays to State jurisdiction.

Why Banks and Government Offices Close: Section 25 of the Negotiable Instruments Act

A common source of confusion among private-sector employees is that banks, financial institutions, and government offices are closed on Diwali. However, public holidays for banks and government treasuries are declared by government notification under Section 25 of the Negotiable Instruments Act, 1881, which originally dealt with the maturity of negotiable instruments falling due on a public holiday.

Notifications issued under Section 25 of the Negotiable Instruments Act apply to banking institutions and government departments unless a private establishment voluntarily adopts that calendar. They do not create a statutory right to a paid holiday for general commercial, IT, or industrial private-sector employees.

The Primary Legal Basis: State Festival Holiday and Shops Laws

States regulate private-sector festival holidays through two primary statutory mechanisms:

1. Dedicated National and Festival Holidays (NFH) Acts: States such as Karnataka, Tamil Nadu, Kerala, and Odisha have enacted standalone statutes mandating a minimum number of paid national and festival holidays across factories, shops, and commercial establishments.
2. State Shops and Establishments Acts: States such as Maharashtra embed paid holiday mandates directly within their Shops and Establishments legislation.

Under these State laws, Diwali is rarely named as a fixed, automatic holiday by default. Instead, State statutes prescribe 3 to 5 fixed statutory holidays (such as 26 January, 15 August, 2 October, 1 May, or State Formation Days) and require the remaining quota of festival holidays to be selected in consultation with workers or the Labour Inspector. Diwali becomes a legally enforceable paid holiday once it is designated on the employer’s annual notified holiday list under the applicable State law, or when granted through contract, policy, or custom.

State-by-State Legal Position

State	Applicable Statute	Legal Position on Diwali
Maharashtra	Maharashtra Shops and Establishments (Regulation of Employment and Conditions of Service) Act, 2017 (Section 18(7))	Mandates 8 paid holidays per calendar year for establishments employing 10 or more workers: 4 fixed days (26 January, 1 May, 15 August, and 2 October) and 4 other festival holidays agreed upon between the employer and workers before the start of the calendar year. Diwali becomes legally binding once selected among those four festival holidays.
Karnataka	Karnataka Industrial Establishments (National and Festival Holidays) Act, 1963 (Section 3) read with 1964 Rules	Mandates at least 10 paid holidays per calendar year: 5 fixed statutory holidays (26 January, 1 May, 15 August, 2 October, and 1 November for Kannada Rajyotsava) and at least 5 festival holidays selected by the employer in consultation with the trade union or employees. Under Rule 3, the holiday list is submitted in Form I to the Inspector and displayed on the notice board before the end of the preceding year.
Tamil Nadu	Tamil Nadu Industrial Establishments (National, Festival and Special Holidays) Act, 1958 (Section 3)	Mandates 9 paid holidays per calendar year: 4 fixed holidays (26 January, 1 May, 15 August, and 2 October) plus 5 festival holidays designated by the Inspector in consultation with the employer and employees. Diwali is enforceable once designated as one of the five festival holidays.
Delhi	Delhi Shops and Establishments Act, 1954 (Section 16)	Section 16(3)(i) defines national and other holidays as 3 fixed National Holidays (26 January, 15 August, and 2 October) and such other holidays as may be prescribed. Because the Act does not prescribe a fixed numeric festival quota in its text, private commercial offices in Delhi grant festival holidays like Diwali based on employment contracts, HR policy, custom, or annual GNCTD notifications.

Note for NCR Employers: While the Delhi Shops Act applies within the NCT of Delhi, industrial and commercial establishments operating in Gurugram or Faridabad (Haryana) are governed by the Punjab Industrial Establishments (National and Festival Holidays and Casual and Sick Leave) Act, 1965 (as applicable to Haryana), which mandates 3 national holidays and 5 festival holidays.

The Contractual and Customary Layer

Even where State law leaves festival selection flexible, an employer may still be legally bound to provide a paid Diwali holiday through:

• The Employment Contract or Offer Letter: If Diwali or a specified number of festival holidays is promised in the employment contract, it becomes a binding contractual entitlement.
• Company HR Policy or Holiday Calendar: Once an employer publishes its annual holiday list on the notice board or HRMS portal and includes Diwali, it creates an enforceable condition of service for that year.
• Customary Practice and Notice of Change: A holiday consistently granted over an extended period can crystallize into an implied condition of service through custom and usage. With the Industrial Disputes Act, 1947 and the Industrial Employment (Standing Orders) Act, 1946 now subsumed into the Industrial Relations Code, 2020, statutory protection for customary holidays is governed by Section 40 of the Industrial Relations Code, 2020. Section 40 prohibits an employer from altering any condition of service applicable to "workers" in respect of any matter specified in the Third Schedule without giving at least 21 days’ prior written notice. Items 5 and 8 of the Third Schedule explicitly cover "Leave with wages and holidays" and "Withdrawal of any customary concession or privilege or change in usage". The Supreme Court of India, in M/s. Tata Iron and Steel Co. Ltd. v. The Workmen (1972) (decided under the corresponding Section 9A of the erstwhile 1947 Act), affirmed that established holiday practices constitute a condition of service that cannot be unilaterally altered without following statutory due process.

What Happens If You Are Asked to Work on Diwali?

If Diwali is a declared paid holiday for an establishment (under the notified State holiday list, contract, or policy) and an employee is required to work on that day, statutory compensation is governed by the applicable State legislation:

• Under State Shops and Establishments Acts: Under provisions such as Section 18(7) of the Maharashtra Shops and Establishments Act, 2017, an employee required to work on a notified paid holiday is entitled to receive twice the ordinary rate of wages (200%) for that day, and in several States, an additional or alternative paid compensatory holiday as prescribed by the specific State statute.
• Under State National and Festival Holidays Acts: Under provisions such as Section 5 of the Karnataka Act (1963) and the Tamil Nadu Act (1958), an employer requiring an employee to work on a notified festival holiday must serve prior written notice in the prescribed manner and pay the employee twice the wages (200%), or normal wages for that day along with a substituted paid holiday on another working day within the statutory timeframe.

Key Compliance Takeaways

• For Employees: Do not assume Diwali is a universal central statutory holiday. Check your establishment's annual notified holiday list on the notice board or HRMS portal alongside your State’s Shops Act or National and Festival Holidays Act. If Diwali is listed as a notified holiday and you are required to work, you are legally entitled to double wages or a paid substituted holiday as prescribed by your State law.
• For Employers: Identify the exact State statute governing each branch, office, factory, or shop. Complete worker consultations before the end of the calendar year, file the required statutory declarations (such as Form I in Karnataka), publish the annual holiday list prior to 1 January, and ensure compliance with Section 40 and the Third Schedule of the Industrial Relations Code, 2020 before modifying any long-standing customary holiday practice.

Disclaimer: All articles, blogs, guides, and resources published on this website relate to Indian labour laws and compliance frameworks. The content is provided for general informational and educational purposes only and must not be construed as legal advice. Readers should consult our legal team or a qualified advocate for advice on specific workplace disputes or compliance audits.