Every October, when Diwali draws near, there are two ongoing discussions that take place at the same time in Indian workplaces.
The discussion that takes place in the Human Resources department: “When is the list of bonuses being sent? Have we worked out the cap properly? Who made it past the limit of ₹21,000 this year?”
At every employee’s desk: “How much bonus am I getting? Is this mandatory? Can the company skip it this year?”
The answer to that last question is no. Statutory bonus is not at the employer’s discretion. It is a legal obligation, and the Payment of Bonus Act, 1965, makes no exception for tight quarters, difficult years, or “we’re saving the cash for expansion”.
The Statutory Bonus was not intended to be a reward for good performance; rather, it was an obligatory portion of the prosperity of the employer. The method to make sure that the eligible employees would get their due share from the profit earned through their efforts. “Statement of Objects and Reasons, Payment of Bonus Act, 1965
Most employees do not know their entitlement in detail. Most employers know they must pay but struggle with the calculation. This guide covers both.
What Is Statutory Bonus?
A statutory bonus is a mandatory annual payment that every covered employer in India must make to eligible employees under the Payment of Bonus Act, 1965. Unlike a performance bonus or an ex-gratia festival gift, it is not discretionary; it is a legal entitlement calculated as a percentage of the employee’s wages, subject to defined eligibility criteria, wage ceilings, and payment deadlines.
The minimum is 8.33%, and the maximum is 20%. The percentage between those two depends on the company’s “allocable surplus”. The portion of profits available for bonus distribution after statutory deductions.
Even when there is no allocable surplus when the company runs a loss. The employer must still pay the minimum 8.33% bonus. This is the most commonly misunderstood aspect of statutory bonus calculation: it is not profit-sharing. It is a floor below which no employer can go, regardless of financial results.
Who Is Eligible for Statutory Bonus?
Which Establishments Must Pay
The Payment of Bonus Act applies to:
- Every factory as defined under the Factories Act, 1948 regardless of headcount
- Every other establishment with 20 or more employees on any day during the accounting year
Once an establishment crosses the 20-employee threshold, the obligation continues even if headcount later falls below 20.
Which Employees Qualify
Three conditions must all be satisfied for bonus eligibility:
- Salary threshold: The minimum salary of the worker plus Dearness Allowance should be less than ₹21,000 per month. If the employee’s salary exceeds ₹21,000, he falls beyond the ambit of law; any bonus will then be at discretion.
- Minimum days worked:Â The employee should have put in a minimum of 30 working days during the accounting year. Paid leaves, maternity leave, lay-off, and accidental disability also get counted in this figure.
- Not excluded: Certain categories are excluded, including apprentices and employees of the LIC, seamen, dock workers, and certain university staff, among others.
Note for employees: If you earn ₹19,000/month basic+DA and you have worked more than 30 days this financial year in a company with 20+ employees, your employer is legally required to pay you statutory bonus. It is not optional for them.
How Is Statutory Bonus Calculated in India?
Calculation Ceiling – Not Your Actual Salary
This is the part most explanations get vague on. Statutory bonus calculation is not based on your actual salary. It is based on a wage ceiling of ₹7,000/month (or your state’s applicable minimum wage, whichever is higher).
Even if your basic+DA is ₹19,000/month, your bonus is calculated on ₹7,000 not ₹19,000.
This means the maximum possible minimum bonus (at 8.33%) is effectively capped regardless of the employee’s actual salary within the eligible range.
Formula
Annual Bonus = Calculation Base × 12 × Bonus Percentage
Calculation Base = Higher of ₹7,000 OR State Minimum Wage
Minimum Bonus % = 8.33%
Maximum Bonus % = 20%
Calculation for a whole-year worker under the minimum bonus slab of ₹7,000 limit: ₹7,000 x 12 x 8.33% = ₹6,997 ~ ₹7,000
Calculation for pro-rated part-year workers: the annual calculation figure is divided by 12 and then multiplied with the months or days worked (number of days worked/26 per month).
When Must Statutory Bonus Be Paid?
Payment of statutory bonus shall be done within eight months from the closure of the accounting period. If the normal period from April to March is considered:
- Close of accounting year: 31 March 2026
- Deadline for paying bonus: 30 November 2026
- Filing deadline of the form D: within 30 days from the date of payment
Is Statutory Bonus Taxable?
Yes, but this comes as a surprise to many employees.
Statutory bonus is fully taxable as income under salary as per the Income Tax Act. This will be considered along with your salary income and will be taxed on your slab rate of taxation. There is no exemption applicable for the income from your bonus.
For employees: Your Form 130 (annual TDS certificate, formerly Form 16) should show statutory bonus as part of gross salary. If your employer has deducted TDS at source accounting for the bonus, the deduction should appear in your payslip for the month the bonus was paid.
For HR teams: Statutory bonus paid in November must be factored into the full-year TDS calculation for each eligible employee, as it is salary income for the financial year in which it is paid, not the year it was earned.
Most employers time payment during October–November to coincide with Diwali, which conveniently falls within the deadline window. This works perfectly when it is planned. When it is not, the November 30 deadline catches businesses unprepared.
Late payment consequences: Interest @ 9% p.a. from the date of default. Persistent/wilful default may be made liable to prosecution under Section 28 of the Act, which provides for imprisonment up to 6 months, a fine up to ₹1,000, or both.
Common Employer Mistakes with Statutory Bonus
Consideration of festival bonus as substitute: An ex gratia or incentive payment made at the time of Diwali is not treated as an equivalent substitute for a statutory bonus unless stated in writing to be so and the amount is equal to or greater than the statutory bonus.
Actual salary basis: Bonus shall be calculated from ₹7,000 (or minimum wage) instead of actual basic salary + DA of the employee. If the bonus is calculated from the actual ₹16,500 salary, it results in overpayment; therefore, the ceiling must be considered.
No account of mid-year salary crossers: If an employee whose actual salary is ₹19,500 basic+DA gets his salary increased in mid-year to ₹21,500, he will become eligible after crossing that point. Therefore, he should not be considered ineligible for the entire year.
Not filing Form D: Paying the bonus is step one. Filing the annual return (Form D) with the labour authority within 30 days of the payment deadline is step two. Missing the filing is a separate violation from missing the payment.
Statutory Bonus Forms and Filing Requirements
Labour Codes update: The Payment of Bonus Act, which forms part of the Code on Wages of 2019, has been provided as an act that will be repealed under the Code. The code on wages has yet to be completely notified by April 2026, so the Payment of Bonus Act, 1965, is still applicable.
Final Thought
Statutory bonus is one of the easiest compliance requirements to fulfil in an Indian payroll system, provided the formula is known and the deadline is accounted for. The difficulty comes from the employer treating it as a discretionary benefit, incorrectly calculating the wage limit, or neglecting to prepare for November.
If you are an employee wondering what you are owed, check the two eligibility conditions (₹21,000 salary ceiling and 30+ working days) and run the calculation on the ₹7,000 (or higher minimum wage) base. If you meet both conditions and work for a company with 20+ employees, the payment is not a favour; it is yours by law.
If you are an HR team preparing for bonus season, TankhaPay’s Statutory Bonus Calculator handles the ceiling logic, minimum wage lookup, and pro-rata calculation for part-year employees so the November payroll run does not have to be a scramble.
