Bonus Calculation in India (2026): Formula, 8.33%–20% Rule, Eligibility and Examples

Every year, as Diwali gets closer, the same questions reach HR and payroll teams: Who is eligible for bonus? Is it 8.33% of basic or of gross? What is the ₹7,000 ceiling, and does it still apply? What if an employee joined in the middle of the year? And do we have to pay bonus if the company made a loss?

Statutory bonus is one of those payments that looks simple until you actually have to calculate it for every employee. This guide explains bonus calculation in India for 2026 step by step: which establishments are covered, which employees are eligible, the formula, the 8.33% minimum and 20% maximum, worked examples at different salary levels, how allocable surplus works, when bonus must be paid, and the mistakes that lead to inspection notices.

General guidance as of 2 October 2026, not legal advice. Bonus provisions now sit under the Code on Wages, 2019, and the eligibility and calculation ceilings depend on government notifications. Check your current position with your CA or labour consultant before you pay.

The short answer

• Who must pay: establishments that employed 20 or more persons on any day during the accounting year.
• Who is eligible: employees whose wages do not exceed the notified limit (₹21,000 a month under the Payment of Bonus Act — the figure most employers still use) and who worked at least 30 days in the year.
• What it is calculated on: wages (generally basic + DA), capped at a calculation ceiling — ₹7,000 a month or the applicable minimum wage, whichever is higher.
• How much: at least 8.33% of wages (or ₹100, whichever is higher), and at most 20%, depending on the company's allocable surplus.
• When: within 8 months of the close of the accounting year — by 30 November for an April–March year. Most companies pay before Diwali.
• Loss years: the minimum 8.33% bonus is payable even if the company made a loss, except in a new establishment's initial exempt years.

Payment of Bonus Act vs the Code on Wages

For decades, statutory bonus came from the Payment of Bonus Act, 1965. That Act has now been subsumed into the Code on Wages, 2019, which brings minimum wages, payment of wages, equal remuneration and bonus under one law.

For most employers, the core rules are the same:

Rule	Payment of Bonus Act	Code on Wages
Establishments covered	20 or more persons	20 or more persons
Employee eligibility	Wages up to ₹21,000 a month	Wages up to the limit notified by the government
Calculation ceiling	₹7,000 or minimum wage, whichever is higher	Minimum wage or the notified ceiling, whichever is higher
Minimum bonus	8.33% or ₹100	8.33% or ₹100
Maximum bonus	20%	20%
Minimum days worked	30 days	30 days
Payment deadline	8 months after year-end	8 months after year-end

The main differences to watch are the definition of wages (the Code's 50% rule, explained below), the notified ceilings, which can change by notification rather than by amending the law, and disqualification, which now also covers dismissal for sexual harassment.

Step 1: Is your establishment covered?

Bonus provisions apply to an establishment where 20 or more persons were employed on any day during the accounting year. A few points that catch employers out:

• It's "on any day", not on average. If you had 20 people on your rolls for even one day — during a peak season, for example — you are covered for that year.
• Count all employees, not only those eligible for bonus. Managers earning ₹80,000 a month count towards the 20, even though they won't get statutory bonus.
• Some states use a lower threshold for certain establishments. Check your state's notification.
• Once covered, an establishment stays covered even if headcount later falls below 20.

New establishments

A new establishment generally doesn't have to pay bonus for its first five accounting years — unless it makes a profit in any of those years. If it does, bonus is payable for that year. From the sixth accounting year, bonus is payable every year, profit or loss. Get your CA to confirm which year you are in, because "new establishment" has a specific meaning and doesn't cover a mere change of name or location.

Step 2: Which employees are eligible?

An employee is eligible for statutory bonus for an accounting year if:

1. Their wages don't exceed the eligibility limit. Under the Payment of Bonus Act, that limit is ₹21,000 a month, and it's the figure most employers continue to apply until a fresh notification under the Code says otherwise.
2. They worked at least 30 working days in that year.
3. They aren't disqualified.

An employee who resigned, retired or was terminated (other than for the disqualifying reasons below) during the year is still entitled to bonus for the days they worked. Pay it in the full and final settlement or by the normal bonus date — don't simply forget it.

What counts as "days worked"

When you prorate bonus, days on which the employee was on paid leave, on maternity leave, laid off, or affected by a lockout or legal strike are generally treated as days worked. Unpaid absence (loss of pay) and unauthorised absence are not.

Who is disqualified

An employee can be disqualified from bonus if they were dismissed for:

• fraud;
• riotous or violent behaviour on the premises;
• theft, misappropriation or sabotage of the establishment's property; or
• sexual harassment.

Disqualification needs a proper dismissal, not just an allegation. If in doubt, treat the employee as eligible and take advice.

Step 3: Find the wages for bonus

For bonus purposes, "wages" generally means basic pay plus dearness allowance (DA). It usually excludes:

• HRA and conveyance;
• overtime;
• commission and incentives;
• the employer's PF and ESI contributions;
• gratuity, retrenchment compensation and the bonus itself.

The 50% rule under the Code on Wages

The Code on Wages uses a common definition of wages, and it includes an important anti-avoidance rule: if the excluded components (like HRA and allowances) are more than 50% of total remuneration, the excess is added back to wages.

Example: an employee's monthly remuneration is ₹20,000, made up of basic ₹6,000 and allowances ₹14,000.

• 50% of total remuneration = ₹10,000
• Allowances above 50% = ₹14,000 − ₹10,000 = ₹4,000
• Wages for statutory purposes = ₹6,000 + ₹4,000 = ₹10,000

So a very low basic doesn't reduce bonus the way it used to. The same rule affects PF — see our PF calculation guide. Review your salary structures with your CA before you calculate bonus.

Step 4: Apply the calculation ceiling

Bonus isn't calculated on the full wages of every eligible employee. It's calculated on the lower of:

• the employee's actual wages, and
• the calculation ceiling — ₹7,000 a month, or the minimum wage for that employee's category, whichever is higher.

Because state minimum wages for most categories are now well above ₹7,000, the minimum wage usually becomes the ceiling in practice. That's the most common bonus calculation mistake: companies still calculate on a flat ₹7,000 when the applicable minimum wage is ₹11,000, ₹13,000 or more.

To find the right ceiling, check the current minimum wage notification for your state, zone and employee category (unskilled, semi-skilled, skilled, highly skilled). Minimum wages are revised, often twice a year with VDA, so use the rate applicable to each month.

Step 5: The bonus formula

For each eligible employee:

Annual bonus = (Wages for bonus, capped at the calculation ceiling, for each month worked) × bonus percentage

Or, for an employee whose wages and ceiling stay the same all year:

Annual bonus = Monthly bonus wage × 12 × bonus %

Where:

• Monthly bonus wage = lower of actual wages earned in the month and the calculation ceiling;
• Bonus % = between 8.33% and 20%, depending on allocable surplus (Step 6).

Use wages actually earned — after loss of pay — not the full-month salary.

Worked examples

All examples assume an April 2025–March 2026 accounting year, bonus payable by 30 November 2026.

Example 1: wages below the ceiling

Priya's basic + DA is ₹9,000 a month. The applicable minimum wage for her category is ₹12,000, so her calculation ceiling is ₹12,000. Her actual wages are below the ceiling, so bonus is calculated on actual wages.

Item	Calculation	Amount
Monthly bonus wage	Lower of ₹9,000 and ₹12,000	₹9,000
Annual bonus wages	₹9,000 × 12	₹1,08,000
Bonus at 8.33%	₹1,08,000 × 8.33%	₹8,996
Bonus at 20%	₹1,08,000 × 20%	₹21,600

Example 2: wages above the ceiling (minimum wage applies)

Ravi's basic + DA is ₹17,000 a month, so he's eligible (below ₹21,000). His category's minimum wage is ₹12,000, which is higher than ₹7,000, so the ceiling is ₹12,000.

Item	Calculation	Amount
Monthly bonus wage	Capped at ₹12,000	₹12,000
Annual bonus wages	₹12,000 × 12	₹1,44,000
Bonus at 8.33%	₹1,44,000 × 8.33%	₹11,995
Bonus at 20%	₹1,44,000 × 20%	₹28,800

If the company had wrongly used ₹7,000, it would have paid only ₹6,997 at 8.33% — a shortfall of ₹4,998 for one employee for one year.

Example 3: the ₹7,000 ceiling applies

Where no higher minimum wage applies, the ceiling is ₹7,000. For an employee with wages of ₹15,000:

Item	Calculation	Amount
Monthly bonus wage	Capped at ₹7,000	₹7,000
Annual bonus wages	₹7,000 × 12	₹84,000
Bonus at 8.33%	₹84,000 × 8.33%	₹6,997
Bonus at 20%	₹84,000 × 20%	₹16,800

Example 4: joined mid-year, with loss of pay

Neha joined on 1 October 2025 with basic + DA of ₹10,000. The ceiling is ₹12,000. She worked October–March (6 months), with 5 days of loss of pay in a 30-day January.

Month	Wages earned	Bonus wage
October–December	₹10,000 × 3	₹30,000
January	₹10,000 × 25 ÷ 30	₹8,333
February–March	₹10,000 × 2	₹20,000
Total		₹58,333

Bonus at 8.33% = ₹58,333 × 8.33% = ₹4,859.

Example 5: not eligible

Arjun's basic + DA is ₹24,000 a month. That's above the ₹21,000 eligibility limit, so he isn't entitled to statutory bonus. Any bonus he gets is a contractual or performance bonus under your own policy — but he still counts towards the 20-employee threshold.

Example 6: crossing the eligibility limit during the year

Meera earned ₹19,500 a month until September and got a raise to ₹22,500 from October. Practice differs, but a common approach is to treat her as eligible for the months her wages were within the limit (April–September) and calculate bonus on those months only. Agree the approach with your CA and apply it consistently.

Step 6: 8.33% or 20%? Allocable surplus explained

The minimum bonus (8.33%) is payable regardless of profit. Whether you pay more — up to 20% — depends on the company's allocable surplus.

1. Gross profit is calculated from the profit and loss account, with adjustments set out in the law.
2. Available surplus = gross profit minus prior charges such as depreciation, direct taxes and certain other deductions.
3. Allocable surplus = 60% of available surplus for a company (other than a banking company), or 67% for other establishments.

Compare the allocable surplus with the total bonus at 8.33% and at 20%:

• If allocable surplus is less than the 8.33% bonus, you still pay 8.33%. The shortfall is set off against future years.
• If it's between 8.33% and 20%, you pay bonus equal to the allocable surplus (as a percentage of total bonus wages).
• If it's more than the 20% bonus, you pay 20%. The excess is set on — carried forward — for future years, subject to limits.

Set-on and set-off are carried forward for up to four accounting years.

A worked company example

A company has 25 eligible employees, each with bonus wages of ₹12,000 a month (₹1,44,000 a year). Total bonus wages = ₹36,00,000.

Item	Amount
Bonus at 8.33%	₹2,99,880
Bonus at 20%	₹7,20,000
Available surplus	₹9,00,000
Allocable surplus (60%)	₹5,40,000

The allocable surplus of ₹5,40,000 is between the minimum and maximum, so the company pays bonus of ₹5,40,000 — 15% of bonus wages. Each employee gets ₹21,600.

If available surplus had been ₹15,00,000, allocable surplus would be ₹9,00,000. The company would pay 20% (₹7,20,000), and the ₹1,80,000 excess would be carried forward as set-on.

Your CA or auditor should compute the surplus. HR's job is to make sure the eligible employee list and bonus wages are accurate, because that's what the percentage is applied to.

Step 7: Pay on time — and adjust what you've already paid

• Deadline: within 8 months of the end of the accounting year — by 30 November for an April–March year. If there's a dispute, the timeline can differ.
• Advances and festival bonus: if you've already paid a customary or festival bonus (puja bonus, Diwali bonus) or an interim advance during the year, you can generally deduct it from statutory bonus. Make sure your policy says so and your records show it clearly.
• Deductions for financial loss: if an employee caused financial loss through misconduct, the amount can be deducted from that year's bonus, within limits.
• Pay by bank transfer and keep proof. Cash payment of bonus is a common inspection red flag.

Many employers pay statutory bonus in the Diwali payroll — in 2026, Diwali is on 8 November, so October or early-November payroll is common.

Tax, PF and ESI on bonus

• Income tax: bonus is taxable salary in the year it's paid. Add it to the month's salary and recompute TDS under section 192 for the year — don't deduct a flat percentage. Our guide to the old vs new tax regime explains how this affects take-home.
• PF: annual statutory bonus is generally not part of PF wages. But a "bonus" paid every month as part of fixed salary may be treated as wages — another reason not to disguise basic as monthly bonus.
• ESI: annual bonus is generally excluded from ESI wages. Regular monthly payments called bonus may be included. See our ESIC wage ceiling guide.
• Payslips: show bonus as a separate earning line so the employee can see what it is and why their TDS changed that month.

Records and returns

Keep, for each accounting year:

• the computation of gross profit, available surplus and allocable surplus;
• set-on and set-off carried forward;
• the eligible employee list with monthly bonus wages and days worked;
• bonus paid, deductions made and the payment date.

Many states require an annual return on bonus paid, and the Code on Wages is moving these registers and returns to electronic formats. Check your state portal for the current form and deadline.

Common bonus calculation mistakes

1. Using ₹7,000 when the minimum wage is higher. This is the most common shortfall.
2. Calculating on gross salary instead of basic + DA (or on basic alone when the 50% rule adds allowances back).
3. Ignoring loss of pay, so bonus is calculated on wages the employee didn't earn.
4. Leaving out employees who left during the year. They're entitled for the days they worked.
5. Excluding contract or casual workers who meet the eligibility conditions.
6. Skipping bonus in a loss year. The minimum 8.33% is still payable once you're out of the new-establishment exemption.
7. Paying festival bonus and statutory bonus separately without adjusting one against the other — or adjusting without a written policy.
8. No surplus computation on file, so the bonus percentage can't be justified during an inspection.
9. Wrong TDS because bonus wasn't added into the annual tax projection.

How PeopleVio helps with bonus

Let's be clear about what PeopleVio does and doesn't do here.

What PeopleVio doesn't do (yet): it doesn't compute gross profit, available surplus or allocable surplus, and it doesn't automatically calculate statutory bonus for each employee. Your CA should compute the surplus and agree the bonus percentage.

What PeopleVio does: it gives you accurate inputs and pays bonus cleanly through payroll.

• Attendance and paid days, including leave and loss of pay, so you know each employee's days worked and wages actually earned for every month of the year.
• Salary structures with separate basic, HRA and allowance components, so bonus wages are easy to identify.
• Payroll history by month, so you can export the year's earned basic + DA for every employee — including those who left.
• One-off pay adjustments to add statutory bonus or a Diwali bonus to a specific month's payroll, without it carrying over into the next month.
• Payslips that show bonus as its own earning line.
• PF, ESI and TDS calculated in the same payroll run — though for a one-off annual bonus, review the month's PF, ESI and TDS figures before you finalise, because annual statutory bonus is generally treated differently from regular monthly pay.
• Offboarding checklists with a full and final settlement step — a good place to make sure pro-rata bonus isn't forgotten.

Active employees	Monthly billing	Yearly billing (per month)
20	₹1,180	₹980
50	₹2,450	₹2,050
100	₹4,900	₹4,100

Prices exclude GST. See the pricing page.

Bonus calculation checklist

Before you run bonus payroll:

• Confirm you employed 20 or more persons on any day of the year.
• Confirm whether you're still within the new-establishment exemption.
• Check the current eligibility limit and calculation ceiling notified for your state.
• Get the current minimum wage for each employee category.
• List all eligible employees — including those who left — with at least 30 days worked.
• Calculate monthly bonus wages from wages actually earned, capped at the ceiling.
• Get the allocable surplus and bonus percentage from your CA.
• Deduct festival bonus or advances already paid, as per your written policy.
• Add bonus to payroll and recompute TDS.
• Pay by bank transfer before the deadline and file any required return.

Frequently asked questions

How is bonus calculated in India? Statutory bonus is a percentage — at least 8.33% and at most 20% — of wages (basic + DA) earned during the accounting year, with wages capped at the calculation ceiling of ₹7,000 a month or the applicable minimum wage, whichever is higher.

Who is eligible for statutory bonus? Employees of a covered establishment whose wages don't exceed the notified limit (₹21,000 a month under the Payment of Bonus Act) and who worked at least 30 days in the accounting year.

Is bonus calculated on basic or gross salary? On wages — generally basic plus DA — not on gross. Under the Code on Wages, if allowances exceed 50% of total remuneration, the excess is added to wages.

Is the ₹7,000 bonus ceiling still valid? The ceiling is ₹7,000 or the applicable minimum wage, whichever is higher. Since most minimum wages are now above ₹7,000, the minimum wage is usually the real ceiling. Check for any fresh notification under the Code on Wages.

Is bonus mandatory if the company is in loss? Yes. The minimum bonus of 8.33% is payable even in a loss year, except during a new establishment's initial exempt years in which it made no profit.

What is the last date to pay bonus? Within 8 months of the close of the accounting year — 30 November for an April–March financial year.

Do employees who resign get bonus? Yes. If they were eligible and worked at least 30 days, they're entitled to bonus in proportion to the days they worked.

Can Diwali bonus be adjusted against statutory bonus? Generally yes. A customary or festival bonus paid during the year can be deducted from the statutory bonus payable for that year, if your records and policy show it clearly.

Is PF deducted on bonus? Annual statutory bonus is generally not included in PF wages. Regular monthly payments labelled as bonus may be treated as wages.

Does PeopleVio calculate statutory bonus automatically? Not yet. PeopleVio gives you the attendance, paid days and earned wages you need, and lets you add bonus to payroll as a one-off earning that shows on the payslip. Your CA should compute the allocable surplus and bonus percentage.

The bottom line

Statutory bonus isn't "8.33% of salary". It's 8.33% to 20% of the right wages, for the right employees, capped at the right ceiling — usually the minimum wage, not ₹7,000 — and paid by 30 November. Get your attendance and earned wages right through the year, and bonus season becomes a calculation, not a scramble.

Running bonus out of Excel this Diwali? PeopleVio keeps attendance, earned wages, PF, ESI, TDS and payslips in one place, so your bonus inputs are ready when you need them. See PeopleVio's pricing or book a demo.

Related reading: PF calculation on salary · How to calculate salary per day · Full and final settlement · CTC vs in-hand salary · Gratuity calculation in payroll software