Every Diwali season, the same questions surface across Indian businesses. How much bonus do we need to pay? Is it mandatory even if we made a loss? Who qualifies and who does not? Can we adjust the festival advance against statutory bonus? And what happens if we miss the deadline?

Statutory bonus under the Payment of Bonus Act 1965 is one of the most misunderstood compliance obligations in Indian payroll. Many small business owners confuse it with performance bonuses or festival gifts. Some believe it is optional. Others think the minimum rate has changed. The result is widespread non-compliance that exposes businesses to penalties including imprisonment, often for violations that are simple to prevent with the right knowledge and the right payroll system.

This guide covers everything you need to know about statutory bonus in India for 2026. We explain who must pay, who qualifies to receive, how to calculate the correct amount, the wage ceiling rules, the payment deadline, the filing requirements, and how payroll software like SalaryBox automates the entire bonus compliance process so you never face a penalty for getting it wrong.

Which Businesses Must Pay Statutory Bonus Under the Payment of Bonus Act?

The Payment of Bonus Act 1965 applies to specific categories of establishments. Understanding whether your business falls within its scope is the first step.

Establishment Type	Applicability Threshold	Important Note
Factory (any manufacturing unit)	All factories regardless of employee count	Includes seasonal factories
Other Establishments (shops, offices, services)	20 or more employees on any day during the year	Once applicable, continues even if count drops below 20
New Establishment	First 5 years: bonus payable only in profitable years	From 6th year, minimum bonus mandatory regardless of profit
Public Sector Undertaking	Covered if not under separate bonus scheme	Many PSUs have their own bonus/ex-gratia schemes

The critical rule to remember is the continuity clause. Once your establishment has had 20 or more employees on any single day in an accounting year, the Act becomes applicable. It then continues to apply in all subsequent years regardless of whether your employee count drops below 20. This catches many businesses off guard when they reduce headcount but still face bonus obligations.

Which Employees Are Eligible for Statutory Bonus?

Not every employee in a covered establishment qualifies for statutory bonus. The Act specifies clear eligibility criteria based on wages and service duration.

Eligibility Criterion	Rule	Explanation
Wage/Salary Threshold	Basic + DA must be Rs 21,000 or less per month	Employees earning above Rs 21,000 basic+DA are excluded from statutory bonus
Minimum Service	Must have worked for at least 30 days in the accounting year	Even temporary and casual employees qualify if they worked 30+ days
Disqualification	Dismissed for fraud, violent behaviour, or theft	Employees terminated for these specific reasons lose bonus eligibility
Probation Period	Probationary employees are eligible	Probation does not affect bonus eligibility if 30-day service is met
Part-Year Employees	Pro-rata bonus for partial year service	An employee who worked 6 months gets half the annual bonus amount

Statutory Bonus Calculation Formula and Wage Ceiling Rules

The bonus calculation involves two key concepts: the minimum bonus rate and the calculation ceiling. Understanding both is essential for compliance.

Minimum and Maximum Bonus Rates

Bonus Type	Rate	When Applicable
Minimum Bonus	8.33% of wages earned during the year	Mandatory every year regardless of profit or loss
Maximum Bonus	20% of wages earned during the year	When allocable surplus exceeds minimum bonus liability

The minimum bonus of 8.33 percent is non-negotiable. Even if your company made a loss during the financial year, you must pay the minimum bonus to all eligible employees. The only exception is new establishments in their first five years, which need to pay bonus only in profitable years, but once the sixth year arrives, the minimum bonus becomes mandatory regardless of profitability.

The Wage Ceiling for Calculation

This is where many businesses make mistakes. There are two wage limits to understand.

• Eligibility ceiling: Rs 21,000 per month. Employees with basic plus DA above this amount are not eligible for statutory bonus at all.
• Calculation ceiling: Rs 7,000 per month or the minimum wage notified by the state government for the scheduled employment, whichever is higher. Even if an eligible employee earns Rs 18,000 basic plus DA per month, the bonus is calculated on Rs 7,000 (or the applicable minimum wage) and not on their actual salary.

This ceiling ensures that bonus amounts remain within a defined range while still benefiting lower-wage workers proportionately more.

The Bonus Calculation Formula

Annual Bonus = (Wage base per month x 12) x Bonus Percentage

Where the wage base is the lower of actual monthly basic plus DA or the calculation ceiling (Rs 7,000 or state minimum wage, whichever is higher), and the bonus percentage is between 8.33 percent (minimum) and 20 percent (maximum) depending on the allocable surplus.

Bonus Calculation Examples for Different Scenarios

Example 1: Employee Earning Below Calculation Ceiling

Parameter	Value
Monthly Basic + DA	Rs 6,000
Calculation Base (actual, since below ceiling)	Rs 6,000
Annual Wages for Bonus	Rs 6,000 x 12 = Rs 72,000
Minimum Bonus (8.33%)	Rs 72,000 x 8.33% = Rs 5,998
Maximum Bonus (20%)	Rs 72,000 x 20% = Rs 14,400

Example 2: Employee Earning Above Ceiling But Below Eligibility Limit

Parameter	Value
Monthly Basic + DA	Rs 18,000
Eligible? (Below Rs 21,000)	Yes
Calculation Base (capped at Rs 7,000 or min wage)	Rs 7,000 (assuming state min wage is below Rs 7,000)
Annual Wages for Bonus	Rs 7,000 x 12 = Rs 84,000
Minimum Bonus (8.33%)	Rs 84,000 x 8.33% = Rs 6,997
Maximum Bonus (20%)	Rs 84,000 x 20% = Rs 16,800

Example 3: Employee Who Worked Part of the Year

Parameter	Value
Monthly Basic + DA	Rs 10,000
Months Worked in the Year	7 months (joined September)
Calculation Base	Rs 7,000 (capped)
Pro-Rata Wages for Bonus	Rs 7,000 x 7 = Rs 49,000
Minimum Bonus (8.33%)	Rs 49,000 x 8.33% = Rs 4,082
Maximum Bonus (20%)	Rs 49,000 x 20% = Rs 9,800

Statutory Bonus Quick Reference Table

Use this table for quick estimation of minimum and maximum bonus amounts based on the calculation wage base.

Monthly Wage Base	Annual Wage Base	Min Bonus (8.33%)	Max Bonus (20%)
Rs 5,000	Rs 60,000	Rs 4,998	Rs 12,000
Rs 6,000	Rs 72,000	Rs 5,998	Rs 14,400
Rs 7,000 (ceiling)	Rs 84,000	Rs 6,997	Rs 16,800
Rs 8,000 (state min wage example)	Rs 96,000	Rs 7,997	Rs 19,200
Rs 10,000 (higher state min wage)	Rs 1,20,000	Rs 9,996	Rs 24,000

How Allocable Surplus Determines the Actual Bonus Percentage

Whether an employer pays 8.33 percent or up to 20 percent depends on the company’s allocable surplus for the accounting year.

The Surplus Calculation

• Start with the Gross Profit of the establishment as per the Profit and Loss account.
• Deduct permitted deductions as specified in the Second Schedule of the Act, including depreciation, development rebate or investment allowance, direct taxes, and any other sums specified.
• The result is the Available Surplus.
• Allocable Surplus equals 67 percent of the Available Surplus for companies other than banking companies, and 60 percent for banking companies.
• If the Allocable Surplus exceeds the minimum bonus liability (8.33 percent of total eligible wages), the excess is distributed as additional bonus up to the maximum of 20 percent.
• If the Allocable Surplus is less than the minimum bonus liability, the employer still pays the minimum 8.33 percent. The shortfall is carried forward as a set-on for up to 4 years.

In practice, most small and medium businesses in India pay the minimum 8.33 percent because the allocable surplus calculation is complex and the minimum bonus is already a significant outflow. Larger profitable companies may pay between 8.33 and 20 percent based on their actual surplus.

Bonus Compliance Calendar and Filing Requirements

Deadline	Requirement	Penalty for Non-Compliance
30 November 2026	Last date to pay statutory bonus for FY 2025-26 (within 8 months of FY end)	Imprisonment up to 6 months or fine up to Rs 1,000 or both
Within 30 days of payment	File Form D (Annual Return) with the Inspector	Fine for non-filing
Ongoing	Maintain bonus register in Form A	Failure to maintain records: fine up to Rs 1,000
Ongoing	Maintain computation sheet in Form B showing allocable surplus	Fine for non-maintenance
Ongoing	Maintain set-on and set-off register in Form C	Fine for non-maintenance

The 8-month deadline from the end of the financial year is strict. For a company following the standard April-March financial year, statutory bonus for FY 2025-26 must be paid by 30 November 2026. Most companies pay bonus during the Diwali festival period in October or November, which conveniently falls before the deadline.

Common Statutory Bonus Mistakes Indian Businesses Make

Mistake	Why It Is Wrong	Correct Approach
Not paying bonus because company made a loss	Minimum 8.33% is mandatory regardless of profit/loss (after 5th year)	Pay minimum bonus even in loss-making years
Calculating bonus on full salary instead of wage ceiling	Bonus is calculated on Rs 7,000 or state min wage, not actual salary	Apply the calculation ceiling correctly
Excluding temporary or part-year employees	Anyone who worked 30+ days is eligible for pro-rata bonus	Include all employees who meet the 30-day threshold
Treating performance bonus as statutory bonus	They are legally different; one does not offset the other	Pay statutory bonus separately from performance bonus
Missing the 8-month payment deadline	Criminal offence with imprisonment risk	Pay by 30 November; set calendar reminders
Not filing Form D annual return	Filing is mandatory within 30 days of bonus payment	File Form D with the labour inspector promptly
Adjusting salary advances against bonus without consent	Deductions from bonus require employee’s written consent	Get written consent before any deduction from bonus

How SalaryBox Automates Statutory Bonus Compliance

Calculating statutory bonus manually requires tracking each employee’s monthly wages through the year, applying the correct wage ceiling, checking eligibility against the Rs 21,000 threshold, computing pro-rata amounts for part-year employees, and ensuring the payment happens before the deadline. For a business with 50 employees, this is a multi-day exercise prone to errors.

SalaryBox automates the entire statutory bonus process. The system tracks each employee’s wage data throughout the year as part of regular payroll processing. When bonus season arrives, SalaryBox automatically identifies all eligible employees based on the Rs 21,000 wage threshold and the 30-day service requirement. It applies the correct calculation ceiling for each employee, computes pro-rata bonus for employees who joined or left mid-year, and generates the bonus payout amount for each eligible person. The bonus can then be processed as a separate payment run, with the amounts showing clearly on payslips.

For compliance documentation, SalaryBox maintains the equivalent of Form A (bonus register) digitally, making it easy to produce records during labour inspections. The system also generates deadline reminders so you never miss the 30 November payment cutoff.

Frequently Asked Questions About Statutory Bonus

Is statutory bonus taxable?

Yes. Statutory bonus received by an employee is fully taxable as salary income under the Income Tax Act. It is added to the employee’s total income for the year and taxed at the applicable slab rate. TDS is deducted by the employer at the time of bonus payment. SalaryBox automatically adjusts TDS calculations when bonus is processed, ensuring correct withholding.

Can an employee receive both statutory bonus and performance bonus?

Yes. Statutory bonus under the Payment of Bonus Act and performance bonus or incentive bonus under the company’s policy are entirely separate. One cannot be adjusted against the other. An eligible employee is legally entitled to receive statutory bonus in addition to any performance-linked bonus the company pays. However, any customary or interim bonus (like a Diwali bonus) paid during the year can be adjusted against the statutory bonus if there is an agreement to that effect.

What if my employee’s salary crosses Rs 21,000 mid-year?

Eligibility for statutory bonus is determined based on the salary at the time bonus becomes payable, which is the end of the accounting year or the date of payment. If an employee’s basic plus DA crossed Rs 21,000 before the end of the year due to a salary increment, they become ineligible for statutory bonus for that year. However, the bonus for the period when they were within the threshold is a matter of interpretation. Best practice and the safer compliance approach is to pay pro-rata bonus for the months when the employee was within the eligibility limit.

Do contract workers get statutory bonus?

If a contract worker is employed directly by the principal employer and has worked for 30 or more days in the accounting year with wages within the eligibility threshold, they are entitled to statutory bonus. If the worker is employed through a contractor, the liability for bonus lies with the contractor. However, if the contractor fails to pay, the principal employer may be held liable. The new Labour Codes have strengthened protections for contract workers in this regard.

What is the difference between ex-gratia and statutory bonus?

Statutory bonus is a legal obligation under the Payment of Bonus Act with defined rates, eligibility, and penalties. Ex-gratia is a voluntary payment made by the employer out of goodwill, usually to employees who do not qualify for statutory bonus (such as those earning above Rs 21,000). Ex-gratia has no legal mandate and can be any amount the employer chooses. Many companies pay ex-gratia during Diwali to employees who are not eligible for statutory bonus.

Conclusion: Statutory Bonus Compliance Is Simple When Automated

The Payment of Bonus Act creates a clear, non-negotiable obligation for Indian businesses. The minimum 8.33 percent bonus must be paid to all eligible employees every year, regardless of whether the company is profitable. The eligibility threshold is Rs 21,000 basic plus DA. The calculation ceiling is Rs 7,000 or state minimum wage. The deadline is 8 months from the financial year end. And the penalties for non-compliance include both fines and imprisonment.

Despite the straightforward rules, bonus compliance trips up thousands of Indian businesses every year because of incorrect eligibility assessments, wrong calculation bases, missed deadlines, and confusion between statutory and discretionary bonuses. SalaryBox eliminates every one of these risks by automating eligibility checks, calculations, and payment processing as a natural extension of your monthly payroll workflow. When bonus season arrives, the system already has all the data it needs and the calculations are a single click away.

Getting bonus compliance right is not just about avoiding penalties. It is about treating your employees fairly, honouring a legal entitlement that exists to share prosperity, and building the trust that keeps good people working for your business year after year.