Bonus

What is Bonus?

Bonus in Indian payroll comes in two flavours. Statutory bonus is governed by the Payment of Bonus Act, 1965, and applies to employees earning basic+DA up to ₹21,000 per month in establishments with 20 or more workers. Minimum is 8.33% of salary, maximum 20%, capped at a salary of ₹7,000 or minimum wage, whichever is higher, for calculation purposes. Ex-gratia bonus is anything paid above the statutory cap or paid to employees outside the Act, fully discretionary. Performance bonus and Diwali bonus typically fall here. All bonus is fully taxable as salary in the year of receipt. Employers must pay statutory bonus within 8 months of the financial year end.

Formula: Statutory bonus = min(Basic+DA, ₹7,000 or minimum wage) x 8.33% to 20% x 12 months

Example

Employee with basic+DA of ₹18,000/month. Bonus payable on ₹7,000 (cap). At 8.33%: ₹7,000 x 12 x 8.33% = ₹6,997 per year.

How Bonus is used

Run statutory bonus annually for eligible employees, file Form D under the Bonus Act, and pay before the 8-month deadline. Track ex-gratia separately for tax and payroll reports.

Bonus FAQs

Who is eligible for statutory bonus?

Employees with basic+DA up to ₹21,000/month, in establishments with 20+ workers, who worked at least 30 days in the year.

Is bonus taxable?

Yes, fully taxable as salary in the year it is paid.

What if I leave before bonus is declared?

You are still eligible for pro-rata statutory bonus if you worked 30+ days. Many employers also include it in FnF.