The present work reports the impact of the oxygen vacancies (OVs) created in multiferroic BiFe0.83Ni0.17O3 in both a qualitative and quantitative manner by employing first principles density functional theory calculations. We have investigated the role of OVs in modulating the structural and optical properties of BiFe0.83Ni0.17O3. Our results have shown that the higher concentration of OVs increases the electron hopping process which ultimately results in the presence of Fe2+ and Fe3+ and the increasing trend of lattice parameters is due to the existence of larger ionic radius Fe2+ in addition to Fe3+ ions. More distortion was realized for the NiO6 octahedron when the OVs were created farther from the Ni ion resulting in changes in the electronic state by decreasing band gaps and providing conductivity. Considerably less distortion was observed when OVs were created nearer to the Ni ion, increasing the band gap values in both up and down spin channels. With respect to optical properties, we conclude that OVs, when created nearer to the Ni ion, increase the absorption behavior in a significant manner. The observed refractive index values are known to be one of the highest values known in the UV-visible range of the spectrum and thus the existence of OVs can drive this material towards applications in optical communication devices. The maximum dielectric constant values of 9-10.5 are observed in all the configurations in the UV and visible region of the electromagnetic spectrum. © 2018 IOP Publishing Ltd.