Statutory Bonus India 2026: Complete Guide to the Payment of Bonus Act

Statutory Bonus India 2026: Complete Guide to the Payment of Bonus Act

Every Indian company with 20 or more employees must pay a statutory bonus under the Payment of Bonus Act 1965. The bonus is not discretionary — it is a legal obligation, calculated on a defined formula, with fixed minimum and maximum percentages, and a hard annual payment deadline.

Despite being a decades-old law, bonus compliance generates persistent confusion: who is eligible, how is the allocable surplus calculated, what counts as the bonus ceiling salary, and when exactly must it be paid. This guide answers all of these with the current 2026 figures.

Who Must Pay Bonus

The Payment of Bonus Act applies to every factory and every establishment employing 20 or more persons. Once an establishment is covered, the Act continues to apply even if the employee count drops below 20.

New establishments (first-time operations) are exempt from bonus for the first five accounting years, or until the establishment makes a profit — whichever is earlier.

Who Is Eligible for Bonus

An employee is eligible for statutory bonus if:

• They have worked in the establishment for at least 30 working days in the accounting year
• Their salary or wage does not exceed ₹21,000 per month

The ₹21,000 threshold is the eligibility ceiling set in 2015 and has not been revised since. Employees drawing above ₹21,000 are not covered under the Act (though companies may pay discretionary performance bonuses).

Important: Eligibility is based on the salary/wage at the time of bonus calculation, not at the time of payment. An employee who earned ₹18,000 during the year but got a raise to ₹22,000 before the bonus payment date is still eligible for that year's statutory bonus.

Bonus Calculation Formula

The statutory bonus is calculated as a percentage of the employee's salary. However, the salary used for calculation is capped at ₹7,000 per month OR the minimum wage for the scheduled employment in the state — whichever is higher.

Current bonus calculation ceiling: ₹7,000 per month (or state minimum wage, whichever is higher).

For states where minimum wage exceeds ₹7,000 (which is now the case in most states for skilled categories), the minimum wage is the bonus ceiling. For example:

• If the state minimum wage for the employee's category is ₹9,500/month, the bonus is calculated on ₹9,500 (not ₹7,000)
• If the state minimum wage is ₹6,200/month, the bonus is calculated on ₹7,000 (statutory floor)

Minimum bonus: 8.33% of the bonus calculation ceiling per year (equivalent to one month's wages at the ceiling).

Maximum bonus: 20% of the bonus calculation ceiling per year.

The actual bonus percentage between 8.33% and 20% is determined by the allocable surplus of the establishment.

Worked Example

Employee details:

• Monthly salary: ₹15,000 (eligible — below ₹21,000)
• State minimum wage: ₹9,000/month
• Bonus calculation ceiling: ₹9,000 (minimum wage > ₹7,000)
• Accounting year working days: 240 out of 300 (eligible — above 30 days)

If company pays minimum bonus (8.33%): Annual bonus = 8.33% × ₹9,000 × 12 = ₹9,000 (rounded, equals one month ceiling)

If company pays maximum bonus (20%): Annual bonus = 20% × ₹9,000 × 12 = ₹21,600

Pro-rata for partial year (joined mid-year, 180 working days): Annual bonus × (180/300) — but since 180 > 30, the employee is eligible. Pro-rata applies to the actual working days in the year.

Note: The bonus ceiling salary (₹9,000 in this example) is not the employee's actual salary (₹15,000). The bonus is always calculated on the ceiling, not on the actual salary.

The Allocable Surplus — What Determines the Bonus Percentage

The allocable surplus is the mechanism that ties bonus payment to profitability. The minimum bonus (8.33%) must be paid regardless of profit. Beyond the minimum, the actual bonus percentage depends on how much allocable surplus is available.

Allocable surplus = 67% of net profit (for non-banking companies). For banking companies, it is 60%.

The allocable surplus is distributed among eligible employees based on their proportional salary (capped at the ceiling). If the allocable surplus allows for more than 8.33% but less than 20%, the bonus is paid at that intermediate percentage. If the surplus allows for 20% or more, the maximum 20% is paid.

Set-on and Set-off:

• If the allocable surplus exceeds the 20% maximum payout, the excess is "set on" — carried forward for future years when the surplus may be insufficient.
• If the allocable surplus is insufficient for even the minimum 8.33%, the shortfall is "set off" — carried forward as a liability to be discharged in future profitable years.

For most growing companies that are profitable but conservatively profitable, the minimum 8.33% is the practical baseline, and the set-on/set-off calculation is an annual accounting exercise the finance team handles.

When Must Bonus Be Paid

The Payment of Bonus Act prescribes specific deadlines:

• Within 8 months from the close of the accounting year, OR
• Within 1 month of the date on which the award becomes enforceable after a settlement or award in an industrial dispute

For most companies whose accounting year follows the financial year (April–March), the bonus for FY 2025–26 must be paid by 30 November 2026.

Many companies pay the bonus in advance — during festival seasons (Onam, Diwali, Puja, Christmas) — against the annual statutory bonus liability. These advance payments count toward the annual bonus obligation and must be tracked.

Bonus and Payroll Compliance

TDS on Bonus

Bonus paid to employees is salary income and is subject to TDS under Section 192. The employer must include the bonus in the projected annual income for TDS purposes in the month it is paid.

For payroll systems: when processing bonus payment, the payroll should recalculate the annual TDS projections to include the bonus and deduct TDS accordingly in that month's salary run (or in a separate bonus payroll cycle).

Bonus in EPFO/ESIC Returns

Statutory bonus is wages for ESIC purposes if the bonus is payable as an annual obligation under the Act. ESIC contribution is applicable on bonus payments for ESIC-eligible employees. For PF (EPFO) purposes, bonus is specifically excluded from the definition of "basic wages" — no PF contribution on bonus.

Bonus in the Annual Return

The Annual Return under the Payment of Bonus Act (Form D under the Payment of Bonus Rules) must be filed with the relevant labour authority by the 30th of November each year (or within 30 days after expiry of the accounting year). The return covers the number of eligible employees, the allocable surplus, the bonus percentage, and the total bonus paid.

Common Bonus Compliance Mistakes

Paying Bonus Only to Long-Tenure Employees

Employees become eligible after 30 working days — not 1 year, not 6 months. A contract employee who worked 35 days in the accounting year is entitled to pro-rata bonus. Many companies mistakenly treat bonus as a perk for permanent staff.

Using Actual Salary Instead of Ceiling

Bonus must be calculated on the ceiling (₹7,000 or minimum wage, whichever is higher) — not on the employee's actual salary. An employee with ₹15,000 salary should receive bonus calculated on ₹9,000 (if minimum wage is ₹9,000), not on ₹15,000.

Missing the November Deadline

The 8-month deadline is a legal requirement. Late payment of bonus is an offence under the Act. If the company has been paying advance bonus during the year, verify that the total advance equals or exceeds the statutory minimum before the November deadline.

Not Including Contract and Seasonal Workers

Employees engaged through contractors are employees of the contractor (not the company) — but the contractor has the bonus obligation toward them. For seasonal workers employed directly, if they completed 30 working days, they are eligible.

Frequently Asked Questions

Is bonus applicable to startups and loss-making companies?

New establishments are exempt for the first 5 years OR until they make a profit. After the exemption period, even loss-making companies must pay the minimum 8.33% bonus. The set-off provision carries forward the liability to future profitable years, but the payment obligation does not disappear.

Can bonus be paid in kind or as vouchers?

No. The Payment of Bonus Act requires bonus to be paid in cash.

If an employee is terminated or resigns before the bonus payment date, are they still eligible?

Yes. Bonus eligibility is determined by the accounting year, not the employment status at the time of payment. An employee who completed 30 working days in the accounting year and then resigned is entitled to that year's bonus. Withholding bonus from resigned employees is a common but legally incorrect practice.

Is there a difference between ex-gratia and statutory bonus?

Yes. Statutory bonus is the mandatory minimum under the Payment of Bonus Act. Ex-gratia is a voluntary payment from the employer — typically for employees earning above ₹21,000 or as a top-up above the statutory minimum. Ex-gratia payments do not carry the same legal obligations.

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