A Muslim must not ‘celebrate’ the festival of another religion. Attending a Christmas or Diwali event usually means ‘celebrating’ that holiday. However, if someone needs to attend for a particular reason, such as visiting Christian family members who gather on that day or for a business social meeting, then it is fine if not attending would cause harm. It should be made clear that you are only attending for that reason and do not celebrate that festival.
Giving gifts during the period of non-Muslim religious festivals, such as at the time of Christmas or Diwali, would entail a ‘celebration’ of that holiday if it is connected to that festival, such as a Christmas card or candy cane. However, giving a gift that is unconnected to the holiday such as food or clothing is fine. It is preferred to give the gift either before or after the actual holiday so it is not directly connected to the religious celebration.
Saying “Merry Christmas” or “Happy Diwali” usually means that you are happy about the celebration. However, it is possible that it could also mean, “I hope you enjoy your religious festival of Christmas/Diwali”. It depends on what the listener understands as well as what the speaker intends. There is a general legal rule in Islamic Law that “matters are judged by their intents/purposes”. So if a Muslim intends the first, it is wrong, but if he intends the second, then it is fine to be courteous to people of other religions by saying you hope they enjoy their festival. No Muslim should ever say statements like these to other Muslims. In a pluralistic society it is better to use universal statements like “Happy Holidays” or “Have a wonderful holiday”.
Shaykh Mustafa Umar