Apr 21, 2026
The Payment of Bonus Act is 60 years old in 2025. It was designed when Indian industry was organised labour heavy and profits were expected to flow down to workers. Today, most foreign employers running India payroll focus on higher-earning engineers and managers who sit outside the Act’s eligibility ceiling. It is tempting to treat statutory bonus as an afterthought.
That is exactly where compliance breaks. The Act still binds every establishment with 20 or more employees, and the penalty for non-payment is criminal, not just civil. Missed bonus payments regularly show up in labour audit findings, retention disputes, and Form 16 mismatches. This post walks through exactly how statutory bonus works in 2026: who qualifies, how much to pay, when to pay it, and what happens if you do not.
For the compact definition and historical context, see our Payment of Bonus glossary entry. This post is the operational deep dive.
Statutory bonus in India is governed by the Payment of Bonus Act, 1965. The Act was significantly amended in 2015 (notified 2016) to raise the eligibility ceiling from ₹10,000 to ₹21,000 and the calculation ceiling from ₹3,500 to ₹7,000 per month. Those are the current numbers as of 2026.
Key sections you need to know:
| Section | What It Covers |
|---|---|
| Section 1 | Applicability: establishments with 20+ employees (or 10+ if notified) |
| Section 2(13) | Definition of employee; eligibility ceiling ₹21,000 |
| Section 8 | Eligibility: minimum 30 working days in the accounting year |
| Section 9 | Disqualification for fraud, violence, or theft |
| Section 10 | Minimum bonus: 8.33% of qualifying wages |
| Section 11 | Maximum bonus: 20% of qualifying wages |
| Section 12 | Calculation ceiling: ₹7,000 or minimum wage, whichever is higher |
| Section 15 | Set on and set off of allocable surplus |
| Section 19 | Time limit for payment: 8 months from close of accounting year |
| Section 28 | Penalty for non-compliance: imprisonment up to 6 months or fine up to ₹1,000 |
The Act is listed for repeal under the Code on Wages, 2019, but the Code has not been fully notified as of April 2026. Until the Code is in force, the Payment of Bonus Act continues to govern.
Three conditions must all be met for an employee to be entitled to statutory bonus:
Excluded categories under Section 32:
The last category is the only performance-related ground for disqualification. Poor performance, policy violations, or resignation do not disqualify an employee from bonus.
This is where most foreign employers get the mechanics wrong. There are two separate ceilings that work together:
If your employee earns ≤ ₹21,000 per month in Basic plus DA, they are eligible. If they earn more, they are excluded entirely. There is no partial bonus for higher earners under the statutory framework.
For eligible employees, the bonus percentage is applied to the lower of:
The minimum wage check was added by the 2015 amendment. In states where the minimum wage for unskilled work exceeds ₹7,000, that higher number becomes the calculation base.
Priyanka earns Basic plus DA of ₹18,000 per month in Karnataka, where the notified minimum wage for unskilled work in a commercial establishment is ₹14,000 per month as of 2026.
Without the minimum wage check, Priyanka’s minimum bonus would be ₹6,997 (8.33% of ₹84,000). The 2015 amendment roughly doubled her entitlement in high-minimum-wage states.
The bonus percentage sits between 8.33% (floor) and 20% (ceiling). Where you land depends on your allocable surplus.
Allocable surplus is calculated from the Profit and Loss account, adjusted for items specified in the Second Schedule: gross profit, permitted deductions (depreciation, development rebate, direct taxes), and prior period carry-forwards.
Available Surplus = Gross Profit − Permitted Deductions
Allocable Surplus = 67% of Available Surplus (60% for banking companies and some others)
If your allocable surplus divided by total qualifying wages is:
The Act allows smoothing of bonus across years through set on and set off:
This mechanism ensures that employees receive a predictable minimum while employers can manage cyclical profits.
Bharat Manufacturing has 45 employees in its Pune plant. For FY 2025-26:
| Line Item | Amount (₹) |
|---|---|
| Gross profit before bonus | 2,50,00,000 |
| Less: Permitted deductions | 80,00,000 |
| Available surplus | 1,70,00,000 |
| Allocable surplus (67%) | 1,13,90,000 |
| Total qualifying wages (45 employees) | 37,80,000 |
| Allocable surplus as % of qualifying wages | 301% |
| Bonus payable (capped at 20%) | 7,56,000 |
| Excess for set on | 1,06,34,000 |
Bharat pays 20% (the maximum) and carries forward the excess as set on, capped at 20% of qualifying wages (₹7,56,000), for use in future lean years.
Section 19 requires bonus to be paid within eight months of the close of the accounting year. For companies with:
The appropriate government (state or central labour department) may extend the deadline on application for sufficient reasons, up to a maximum total of two years. In practice, extensions are rare and require documentation of financial difficulty.
Most Indian employers pay statutory bonus just before Diwali, which falls in October or November each year. This predates the Act and is embedded in cultural expectation. An employer who pays bonus in late November misses the Diwali window and creates morale issues even if technically compliant.
Bonus must be paid in cash or by electronic transfer to the employee’s bank account. Payment in kind is not permitted. The employer must provide a bonus slip or statement showing the calculation.
The Payment of Bonus Rules 1975 prescribe three mandatory registers:
| Form | Purpose | Retention |
|---|---|---|
| Form A | Computation of allocable surplus | 8 years |
| Form B | Set on and set off of allocable surplus | 8 years |
| Form C | Details of bonus payable and paid to each employee | 8 years |
| Form D | Annual return to the Labour Inspector by February 1 | Permanent |
Form D is the annual return filed with the state labour department. Missing this return is a common audit finding for foreign employers who do not have a dedicated India compliance team. The India payroll compliance checklist covers the full filing calendar.
When an employee leaves mid-year, they are still entitled to pro-rata bonus if they complete 30 working days in the accounting year. The pro-rata calculation:
Pro-rata Bonus = (Qualifying Wages for Months Worked) × Applicable Bonus %
This must be included in the Full and Final Settlement if the separation happens before the annual bonus payment date. The employee cannot be told to “come back in November” to collect bonus; it must be paid with FnF.
An employee dismissed for fraud, riotous conduct, or theft under Section 9 forfeits bonus entirely, including the pro-rata portion. This is a narrow disqualification and requires documented evidence of the conduct, not just an employer assertion.
True, the Act does not apply above ₹21,000 Basic plus DA. But companies often have a mix of employees above and below the threshold. You cannot skip Form D filing because “none of our employees are eligible.” If your establishment has 20 or more employees total, you must maintain registers and file the return even if zero bonus is payable.
The eligibility and calculation ceilings apply to Basic plus DA, not gross. An employee with ₹22,000 gross but ₹18,000 Basic plus DA is eligible. Running the calculation on gross excludes eligible employees and creates back-payment exposure.
The 2015 amendment added the minimum wage as an alternative calculation base. Employers who still use ₹7,000 flat underpay in states with higher minimum wages. Recent labour department audits in Tamil Nadu and Karnataka have targeted this specifically.
Many foreign employers pay a year-end bonus that combines statutory, performance, and ex-gratia elements. The statutory portion must be separately identified on the bonus slip and in Form C. A lump sum labelled “annual bonus” does not satisfy the Payment of Bonus Act record-keeping requirements.
New establishments can claim exemption from minimum bonus during their first five accounting years if there is no allocable surplus. This requires correct reporting in Form A, not a silent non-payment. Employers who simply do not pay without invoking the exemption face penalty on audit.
For employees on Omnivoo’s India EOR payroll, statutory bonus is handled end-to-end within the platform:
Foreign employers often discover the Payment of Bonus Act only when an employee raises a grievance or an audit flags the missing Form D. By that point, back-payment plus interest can run to several lakhs per establishment. A compliant EOR eliminates that exposure entirely. Talk to our team to see how bonus compliance works in practice.
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