Bonus Calculation Under the Payment of Bonus Act: Complete Guide (2025)
The Payment of Bonus Act 1965 guarantees a minimum annual bonus to eligible employees regardless of company profits. Here is how eligibility is determined, how the amount is calculated, and what performance bonuses look like above the statutory floor.
What is the Payment of Bonus Act?
The Payment of Bonus Act, 1965 mandates an annual bonus to employees in factories and establishments with 20+ employees. The bonus is based on profits but a minimum is guaranteed regardless of profitability.
Eligibility Criteria
- Employees earning a monthly salary up to ₹21,000 (revised 2015)
- Completed at least 30 working days in the accounting year
- Applies to factories, shops, restaurants, IT companies and more
- Contract and temporary employees are also eligible
Minimum and Maximum Bonus Rates
| Type | Rate | Annual Amount (on ₹7,000 ceiling) |
|---|---|---|
| Minimum Bonus | 8.33% | ₹6,993/year (≈ ₹7,000) |
| Maximum Bonus | 20% | ₹16,800/year |
Calculation Formula
Who Gets the Same Bonus Regardless of Salary?
| Actual Monthly Salary | Calculation Wage | Minimum Bonus (8.33%) |
|---|---|---|
| ₹8,000 | ₹7,000 | ₹6,993 |
| ₹15,000 | ₹7,000 | ₹6,993 |
| ₹21,000 | ₹7,000 | ₹6,993 |
| ₹22,000 | Not eligible for statutory bonus | |
Performance / Discretionary Bonus (Above the Act)
Most mid-to-large companies pay additional performance bonuses governed by the employment contract, not the Act:
- Variable Pay: 10–30% of annual CTC tied to individual + company performance
- Joining Bonus: One-time payment, usually with 1–2 year clawback if you leave early
- Retention Bonus: Paid after completing a defined tenure milestone
- Festival Bonus: Ex-gratia around Diwali, Onam, Eid; may or may not be statutory
Taxation of Bonus
All bonuses — statutory or discretionary — are fully taxable as part of salary income in the year of receipt. Your employer adjusts TDS in the month the bonus is paid. A large Q4 bonus can cause a noticeable TDS spike in the payment month.
Payment Deadline
Statutory bonus must be paid within 8 months of the accounting year close. For March-end accounting years, this means by 30 November. Late payment can be reported to the Labour Commissioner.
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