Statutory bonus in India: who is eligible, how it is calculated and when to pay it

Statutory bonus is easy to confuse with the performance bonus most companies talk about. It is not discretionary: it is a share of the year's profit that the law requires establishments to pay to lower paid employees. The rules came from the Payment of Bonus Act, 1965, and now sit in the Code on Wages, which carried most of them over.

The Code on Wages leaves the wage limit and calculation ceiling to be notified by the government. The figures below are those carried over from the Payment of Bonus Act, which most employers continue to apply, as at October 2026. Check for a newer notification before you calculate.

Who is eligible

• The establishment has 20 or more employees.
• The employee earns up to ₹21,000 a month in wages.
• The employee worked at least 30 working days in the accounting year.
• The employee was not dismissed for fraud, violent behaviour on the premises, theft or sabotage of property.

Employees who joined or left during the year are still eligible if they meet the 30 day test, and are paid in proportion to the days they worked.

How much

The minimum is 8.33% of wages for the year, or ₹100, whichever is higher, and it is payable whether or not the business made a profit. The maximum is 20%. Where between the two depends on the allocable surplus, the share of the year's profit that the law sets aside for bonus, worked out from the accounts.

Wages for the calculation are capped. If an employee's monthly wage is above ₹7,000 or the minimum wage for their scheduled employment, whichever is higher, the bonus is calculated as if they earned that figure. Wages here follow the Code on Wages definition: basic pay and dearness allowance, plus any excluded allowances above half of total pay.

A worked example

An employee earns ₹18,000 a month and the minimum wage for their job in their state is ₹12,000. The calculation ceiling is the higher of ₹7,000 and ₹12,000, so ₹12,000. The minimum bonus for a full year is 8.33% of ₹12,000 × 12, about ₹11,995. At the maximum of 20% it would be ₹28,800. An employee earning ₹9,000 in the same state would be calculated on their actual ₹9,000, because it is below the ceiling.

When to pay

• Within eight months of the end of the accounting year, so by 30 November for a year ending in March.
• Advances paid during the year, such as a festival advance or a monthly bonus component, can be adjusted against it, if they were paid as bonus.
• Bonus is taxable salary, so TDS applies in the month it is paid, and the year's projection should include it once it is approved.
• Statutory bonus is excluded from wages for PF, so it does not attract PF contributions.

Where it usually goes wrong

• Calculating on actual salary instead of the capped figure, which overpays some people and underpays nobody, but distorts cost forecasts.
• Leaving out leavers, who are owed a proportional bonus if they worked 30 days.
• Paying a monthly bonus component and then the full annual bonus as well, with no adjustment.
• Missing the November deadline because the bonus is only remembered when the accounts close.

How PayLoom does it

Statutory bonus is a pay element with its own tax treatment, so it is taxed and excluded from PF without manual adjustment, and it can be paid in an off cycle run that still lands on the same record and year to date figures. Days worked, which eligibility and the proportional amount depend on, come from Attendance rather than a separate count.