Various theories exist regarding the origin of Buddhi Diwali. According to one popular belief, the people of the hills received news of Rama's return from exile later than others, leading them to celebrate the joyous occasion a month later. Other stories differ by region, with some celebrating the death of the demon Vritrasur, while others commemorate the demise of Dano Asur. Another theory suggests that the people in the hills were occupied with agricultural activities during Diwali, preventing them from celebrating with the usual fervor, thus giving rise to Buddhi Diwali.

In contrast to the mainstream Diwali, Buddhi Diwali festivities can span between 3 to 7 days, depending on the region. One common element across these celebrations is the use of large fire torches made from cedar or pine wood. During the event, these wooden torches are ignited, accompanied by various ceremonies. In some regions, groups of men engage in a symbolic tradition, striking each other with fire torches, representing ancient wars between sub-groups known as 'khunds' in the hills. The fire symbolizes energy, which is lit to ward off evil spirits, and in some places, hurling abuses on this night is believed to have the same protective effect. While interpretations and methods of celebration may differ, the overarching theme remains constant.