The yearly bonus calculation formula in India now comes from the Code on Wages, 2019, which replaced the Payment of Bonus Act, 1965 on 21 November 2025. Statutory bonus is between 8⅓% and 20% of a capped wage base, for employees earning up to ₹21,000 a month. This guide explains the formula for employees, the allocable surplus and set-on/set-off method employers use to fix the bonus %, the August 2026 notifications, and the 30 November deadline, with worked examples.
Quick answer: if your monthly wages are ₹21,000 or less, the calculation base is your wages, capped at ₹7,000 or the applicable minimum wage, whichever is higher. With a ₹10,000 minimum wage and a full year, the minimum bonus is ₹10,000 × 12 × 8⅓% = ₹10,000 and the maximum (20%) is ₹24,000. Your employer's profits decide where you fall between the two. Check your own figure with our bonus calculator.
Statutory Bonus Under the Code on Wages, 2019
Chapter IV of the Code on Wages (Sections 26 to 41) now governs statutory bonus. On 25 August 2026 the Ministry of Labour and Employment issued two notifications, both effective from 21 November 2025:
- S.O. 4711(E): employees whose wages are up to ₹21,000 a month are eligible.
- S.O. 4710(E): where wages exceed ₹7,000 a month, bonus is calculated as if wages were ₹7,000 or the minimum wage fixed by the Central Government, whichever is higher.
These are the same ₹21,000 and ₹7,000 limits as under the old Act, so the limits did not change. What changed is the definition of wages (Basic + DA + retaining allowance, with the 50% rule), the 20-employee threshold for every establishment, and sexual harassment added as a ground of disqualification.
Who Is Eligible for Yearly Bonus?
| Condition | Rule |
|---|---|
| Wages | Up to ₹21,000 a month |
| Days worked | At least 30 working days in the accounting year (Section 26) |
| Establishment | 20 or more persons employed on any day in the accounting year (Section 41) |
| Not covered | Government and local-authority establishments, LIC, RBI, non-profit and educational institutions, and other listed classes (Section 41) |
| Disqualified | Dismissed for fraud, riotous or violent behaviour at work, theft, misappropriation or sabotage, or conviction for sexual harassment (Section 29) |
Public sector establishments are covered only where they sell goods or services in competition with the private sector and that income is at least 20% of their gross income (Section 40).
Yearly Bonus Calculation Formula for Employees
- Check your wages. Take wages as defined in the Code: Basic + DA + retaining allowance, plus any allowances above 50% of total pay. If they exceed ₹21,000 a month, statutory bonus does not apply.
- Find the calculation base. If wages are ₹7,000 or less, use actual wages. If above ₹7,000, use ₹7,000 or the applicable minimum wage, whichever is higher.
- Multiply by months worked in the accounting year (pro rata, Section 27).
- Apply the bonus %: at least 8⅓% (or ₹100, whichever is higher), at most 20%.
8⅓% is often written as 8.33%. It is exactly one month in twelve, so a full year's minimum bonus equals one month of the calculation base.
Bonus calculation examples
| Monthly wages | Calculation base | Months | Bonus at 8⅓% | Bonus at 20% |
|---|---|---|---|---|
| ₹6,000 | ₹6,000 (actual) | 12 | ₹6,000 | ₹14,400 |
| ₹18,000 | ₹10,000 (minimum wage) | 12 | ₹10,000 | ₹24,000 |
| ₹18,000 | ₹10,000 (minimum wage) | 6 | ₹5,000 | ₹12,000 |
| ₹25,000 | Above ₹21,000: not eligible for statutory bonus | |||
The ₹10,000 minimum wage is an assumption for illustration. Ask your employer which minimum wage it applies to your job.
How Employers Fix the Bonus %: Allocable Surplus
The minimum 8⅓% is payable whether or not there is a profit. Anything above it depends on the allocable surplus:
- Gross profit is computed as prescribed under Section 32.
- Available surplus = gross profit minus the prior charges in Section 34 (depreciation, direct taxes and other prescribed sums), with the tax adjustment in Section 33.
- Allocable surplus = 67% of available surplus (60% for a banking company), under Section 31.
- Bonus % = allocable surplus ÷ total calculation base of eligible employees, kept between 8⅓% and 20%.
Worked example (simplified)
A company has 100 eligible employees, each with a calculation base of ₹10,000 a month, so the total base is ₹1,20,00,000 a year.
| Item | Year 1 | Year 2 | Year 3 |
|---|---|---|---|
| Available surplus | ₹30,00,000 | ₹44,77,612 | ₹2,98,507 |
| Allocable surplus (67%) | ₹20,10,000 | ₹30,00,000 | ₹2,00,000 |
| Set-on brought forward | Nil | Nil | ₹6,00,000 |
| Available for bonus | ₹20,10,000 (16.75%) | ₹30,00,000 (25%) | ₹8,00,000 (6.67%) |
| Bonus paid | 16.75% = ₹20,10,000 | 20% (max) = ₹24,00,000 | 8⅓% (min) = ₹10,00,000 |
| Carried forward | Nil | Set-on ₹6,00,000 | Set-off ₹2,00,000 |
In year 3 the ₹6 lakh set-on from year 2 is used first, so the shortfall carried forward as set-off is only ₹2 lakh. Figures are illustrative; real computations follow the Wages (Central) Rules, 2026 and their worked appendix.
Set-On and Set-Off of Allocable Surplus
- Set-on: if allocable surplus is more than the maximum 20% bonus, the excess is carried forward up to the fourth following year, limited to 20% of total wages, and used to pay bonus in later years (Section 36(1)).
- Set-off: if allocable surplus is less than the minimum bonus, the shortfall is carried forward up to the fourth following year and recovered from later surpluses (Section 36(2)).
- The earliest carried-forward amount is used first (Section 36(4)).
New Establishments
For the first five accounting years after an establishment first sells goods or services, bonus is payable only in a year in which it makes a profit, without set-on and set-off. Set-on and set-off apply in a modified way in years six and seven, and fully from year eight (Section 26(6) to (8)). New departments, undertakings and branches of an existing establishment are treated the same way.
Deductions From Bonus
- Puja, customary or interim bonus already paid in the year can be deducted from the statutory bonus (Section 37).
- Financial loss caused by proven misconduct can be deducted, but only from that year's bonus (Section 38).
- Fewer days worked: bonus is reduced in proportion. Days of permitted lay-off, paid leave, work-injury absence and paid maternity leave count as days worked (Sections 27 and 28).
When Is Yearly Bonus Paid?
Bonus must be credited to the employee's bank account within 8 months of the end of the accounting year (Section 39). For an April–March year, bonus for FY 2025-26 is due by 30 November 2026, which is why it is usually paid as a Diwali bonus. The period can be extended on application, but not beyond two years in total. If there is a dispute, the minimum 8⅓% must still be paid within 8 months.
Is Bonus Taxable?
Yes. Statutory, festival and performance bonus are all taxed as salary in the year received, and your employer deducts TDS. See the effect with our income tax calculator and the Income Tax Department. If you leave mid-year, your pro-rata bonus is part of your full and final settlement.
Statutory Bonus vs Performance Bonus
| Point | Statutory bonus | Performance / ex-gratia bonus |
|---|---|---|
| Source | Code on Wages, Sections 26 to 41 | Company policy or contract |
| Who gets it | Wages up to ₹21,000 a month | As decided by the employer |
| Amount | 8⅓% to 20% of capped base | Any amount |
| Deadline | 8 months after year-end | As per policy |
For the new wage definition, read the Code on Wages guide, or see the Ministry of Labour and Employment. Use our salary breakup calculator to see how bonus fits in your CTC.
Frequently Asked Questions
What is the yearly bonus calculation formula in India?
Bonus = calculation base × months worked × bonus %. The base is your wages, capped at ₹7,000 or the minimum wage (whichever is higher) when wages exceed ₹7,000. The bonus % is 8⅓% to 20%.
Is the Payment of Bonus Act, 1965 still applicable?
No. It was repealed when the Code on Wages, 2019 came into force on 21 November 2025. Statutory bonus is now under Sections 26 to 41 of the Code.
What is the salary limit for bonus eligibility in 2026?
₹21,000 a month, under notification S.O. 4711(E) dated 25 August 2026, effective from 21 November 2025. Employees with higher wages are not entitled to statutory bonus.
What is the minimum and maximum bonus?
The minimum is 8⅓% of the calculation base or ₹100, whichever is higher, payable even without profit. The maximum is 20%, depending on allocable surplus.
What is allocable surplus?
The part of the employer's available surplus set aside for bonus: 67% of available surplus, or 60% for a banking company. It decides whether bonus is above 8⅓%.
What is set-on and set-off in bonus?
Set-on carries forward allocable surplus above the 20% maximum; set-off carries forward a shortfall below the 8⅓% minimum. Both can be carried up to the fourth following year.
How is bonus calculated for less than 12 months?
Pro rata. Multiply the calculation base by the months worked. With a ₹10,000 base and 6 months, the minimum bonus is ₹10,000 × 6 × 8⅓% = ₹5,000.
What is the last date to pay bonus for FY 2025-26?
30 November 2026 for an April–March accounting year, as bonus must be paid within 8 months of the year-end under Section 39 of the Code on Wages.
Is bonus payable if the company makes a loss?
Yes. The minimum bonus of 8⅓% is payable whether or not there is an allocable surplus. The exception is a new establishment in its first five years, which pays only in profitable years.
Is 8.33% the same as 8⅓%?
8.33% is a rounded form of 8⅓%. The law says 8⅓%, which is exactly one-twelfth, so a full year's minimum bonus equals one month of the calculation base.
Yeah Amazing calculator.
ReplyDelete