Payment of Bonus Act India: Who Must Pay, How to Calculate and When to Pay

Every October and November, HR teams across India face the same compliance question. Specifically, who must pay statutory bonus, how is the bonus calculation done correctly, and what happens if it is paid late or not at all?

The payment of bonus act has been in force since 1965 — yet it remains one of the most misunderstood statutory obligations in Indian payroll. Many employers confuse it with performance bonus. Others calculate it incorrectly on gross salary instead of basic wages. In addition, several businesses with fewer than 20 employees incorrectly assume they are exempt.

Furthermore, the 2015 amendment significantly changed the eligibility threshold and the wage ceiling. Consequently, a large number of businesses are still running their bonus calculations on pre-amendment numbers. As a result, this guide covers everything you need to know about the payment of bonus act — applicability, eligibility, the correct bonus calculation formula, set on and set off, the 2015 amendment changes, payment timelines, and penalties for non-compliance.

What Is the Payment of Bonus Act?

The Payment of Bonus Act, 1965 is a central law that makes it compulsory for certain businesses to pay an annual bonus to eligible employees. Specifically, the Act links the bonus payment to the profits of the business — making it a share of profits that the employer gives to workers.

However, even when a business does not earn enough profit, it must still pay a minimum bonus of 8.33% of annual salary or wage. Importantly, statutory bonus under this Act is entirely different from the performance bonus or discretionary bonus that an employer may pay in addition. Furthermore, the payment of bonus act creates a legal duty — it is not a goodwill gesture, and no agreement between employer and employee can remove it.

In fact, many employers learn this the hard way — only after a labour inspection reveals years of missed or incorrect bonus payments. For a broader understanding of how statutory bonus fits into your overall payroll compliance framework, refer to our complete guide on payroll compliance services for Indian businesses.

Payment of Bonus Act — Applicability: Which Businesses Must Comply?

The payment of bonus act applies to every factory as defined under the Factories Act, 1948 — and to every other business where 20 or more persons are employed on any day during the accounting year. Notably, once a business crosses the 20-employee mark, it stays covered under the Act even if the number of employees later falls below 20.

Which Businesses Are Exempt?

Certain categories are specifically exempt from the payment of bonus act. These include the Life Insurance Corporation of India, the Reserve Bank of India, seamen, certain university and educational institution employees, and non-commercial bodies such as hospitals and chambers of commerce.

Additionally, new businesses that have not completed 5 years are exempt during their first 5 accounting years — but only if they do not earn a profit. However, if a new business earns profit in any year within the first 5 years, it must pay bonus for that profitable year. Therefore, early-stage startups that become profitable cannot simply skip their bonus obligation.

Employee Eligibility Under the Payment of Bonus Act

Not every employee in a covered business automatically qualifies for statutory bonus. Therefore, employers must check two eligibility conditions before processing bonus payments. Importantly, both conditions must be met — not just one.

Condition 1 — Salary Ceiling: ₹21,000 Per Month

After the Payment of Bonus Amendment Act 2015, an employee is eligible for statutory bonus only if their salary does not exceed ₹21,000 per month. Before the 2015 amendment, this limit was ₹10,000 per month. Consequently, the amendment brought a much larger share of the workforce within the scope of the Act.

For eligibility purposes, salary means basic salary plus dearness allowance only — HRA, overtime, and other allowances are excluded. Notably, many payroll systems include all salary components by default, which leads to incorrect eligibility calculations. Therefore, always check your payroll configuration against this definition before finalising the eligible employee list.

Condition 2 — Minimum Service of 30 Working Days

In addition to the salary limit, an employee must have worked for at least 30 working days in the accounting year to become eligible for bonus. Notably, days during which the employee was laid off, on maternity leave, or on earned leave are counted as days worked for this calculation.

As a result, even an employee who joins in March and works 30 days before the year closes qualifies for a proportionate bonus. Consequently, this catches many employers off guard — particularly those who assume new joiners in the final quarter are not covered.

Eligibility Condition	Before 2015 Amendment	After 2015 Amendment
Salary ceiling for eligibility	₹10,000 per month	₹21,000 per month
Calculation wage ceiling	₹3,500 per month	₹7,000/month or minimum wage — whichever is higher
Minimum service for eligibility	30 working days	30 working days — unchanged

Bonus Calculation Formula — The Correct Method

Indeed, this is where most payroll teams make expensive errors. The bonus calculation under the Payment of Bonus Act does not use the employee’s actual salary directly. Instead, it uses a capped wage for calculation purposes — even if the employee actually earns more. Understanding this distinction is essential before configuring your payroll system.

Bonus Calculation Example — Step by Step

Employee	Actual Basic + DA	Calculation Wage Used	Min Bonus (8.33%)	Max Bonus (20%)
Employee A	₹5,500/month	₹5,500 (actual, below cap)	₹5,498	₹13,200
Employee B	₹12,000/month	₹7,000 (capped)	₹6,997	₹16,800
Employee C	₹21,000/month	₹7,000 (capped)	₹6,997	₹16,800

Therefore, every eligible employee earning between ₹7,000 and ₹21,000 per month receives the same minimum statutory bonus — because the calculation is capped at ₹7,000 regardless of actual salary. Consequently, the minimum bonus works out to approximately ₹6,997 per year for most eligible employees.

Minimum Bonus and Maximum Bonus — The Legal Limits

In short, the payment of bonus act sets clear, non-negotiable limits on how much bonus an employer must pay and how much it can pay under the law. Both limits — minimum and maximum — are equally important to understand.

Bonus Type	Rate	When It Applies
Minimum Bonus	8.33% of annual wages	Always payable — even in a loss year with no profit
Maximum Bonus	20% of annual wages	When allocable surplus exceeds the minimum bonus amount

Allocable Surplus — What It Is and How It Determines Bonus

Beyond the minimum and maximum limits, the payment of bonus act links the bonus percentage above 8.33% to the concept of allocable surplus — the share of the business’s profits available for distribution as bonus. Understanding this concept is therefore essential for employers who want to determine the correct bonus percentage to pay.

First, the employer calculates gross profit for the accounting year as per the First Schedule of the Act. Subsequently, certain deductions — depreciation, development rebate, direct taxes payable, and other permitted deductions — reduce the gross profit to arrive at the available surplus. Finally, the allocable surplus is 67% of the available surplus for non-banking companies and 60% for banking companies.

In other words, the employer shares 67% of the net available surplus as bonus among eligible employees. However, even if the allocable surplus works out to less than the minimum bonus payable, the employer must still pay the minimum 8.33%. Conversely, if the allocable surplus exceeds the maximum bonus payable, the employer cannot pay more than 20% — the excess instead goes into the set on account for future years.

Set On and Set Off — A Concept Most Employers Miss

Apart from the surplus calculation, the payment of bonus act 1965 includes a balancing tool called set on and set off that works across accounting years. Specifically, this stops employers from paying very high bonuses in highly profitable years. At the same time, it ensures employees receive their minimum even in lean years.

What Is Set On?

When the allocable surplus in a given year exceeds the maximum bonus payable at 20%, the employer carries forward the excess amount to the next accounting year as set on. In other words, set on acts as a reserve that the employer can use to pay higher bonus in a future year when the allocable surplus falls short. Furthermore, the employer can carry set on forward for a maximum of 4 accounting years.

What Is Set Off?

Conversely, when the allocable surplus is less than the minimum bonus payable at 8.33%, the employer carries forward the shortfall as set off to adjust against future surpluses. As a result, the employer still pays the minimum bonus in the current year but records the gap for future adjustment. Similarly, set off can carry forward for a maximum of 4 accounting years.

Situation	What Happens	Carry Forward Period
Allocable surplus exceeds 20% bonus	Excess → Set On (reserve for future years)	Up to 4 accounting years
Allocable surplus less than 8.33% bonus	Shortfall → Set Off (adjusted from future surplus)	Up to 4 accounting years

Payment of Bonus Act 2015 Amendment — What Changed and Why It Still Matters

The Payment of Bonus Amendment Act 2015 was the most significant update to the original 1965 law. As a result, the government revised both the eligibility limit and the calculation wage ceiling upward — bringing a much larger share of the Indian workforce within the statutory bonus framework. Importantly, the government gave the amendment retrospective effect from 1 April 2014.

Provision	Before 2015 Amendment	After 2015 Amendment
Eligibility ceiling	₹10,000 per month	₹21,000 per month
Calculation wage ceiling	₹3,500 per month	₹7,000/month or minimum wage (whichever higher)
Retrospective effect	—	From 1 April 2014
Minimum service	30 working days	30 working days — unchanged

When Must Bonus Be Paid? — Payment Deadline

The payment of bonus act sets a strict deadline. Specifically, bonus must be paid within 8 months from the close of the accounting year. Since most businesses follow the April-to-March financial year, the year closes on 31 March — which means bonus must be paid by 30 November of the same calendar year.

However, if a dispute about the bonus amount is pending before a Labour Tribunal or Labour Court, the employer may make a provisional payment while the matter is being resolved. In that case, the remaining balance must be paid within one month of the Tribunal or Court order. This provision does not excuse delayed payment in non-disputed cases.

Accounting Year	Year Closes On	Bonus Payment Deadline
April to March (most common)	31 March	30 November
January to December	31 December	31 August of following year
Dispute pending before tribunal	—	Provisional payment now + balance within 1 month of order

Statutory Registers and Annual Return Under the Payment of Bonus Act

Beyond the payment itself, the payment of bonus act requires every covered employer to maintain specific statutory registers. Importantly, these must be ready during labour inspections — and their absence is itself a punishable offence, regardless of whether the bonus was paid correctly.

Specifically, there are three registers to maintain. Register A shows the allocable surplus for each accounting year. Next, Register B tracks the set on and set off across years. Finally, Register C shows bonus due and actually paid to each eligible employee. In addition, employers must file an annual return in Form D with the Inspector within 30 days of the payment deadline — that is, by 31 December for April-to-March accounting year businesses.

Just as labour compliance services cover multiple statutory registers across different Acts, bonus registers form a critical part of the overall compliance documentation that labour inspectors check during visits.

Penalties for Non-Compliance With the Payment of Bonus Act

The consequences of violating the payment of bonus act are serious. Importantly, these are criminal penalties — not just administrative fines. Moreover, they apply personally to the person responsible for managing the business, not just the company as a legal entity.

Violation	Penalty Under the Act
Failure to pay statutory bonus	Imprisonment up to 6 months + fine up to ₹1,000 or both
Non-maintenance of Registers A, B, C	Imprisonment up to 6 months + fine up to ₹1,000 or both
Failure to file annual return — Form D	Fine + triggers full labour compliance inspection
Paying bonus after 30 November deadline	Treated as wilful default + interest on delayed payment
Any other violation of the Act	Imprisonment up to 6 months + fine up to ₹1,000 or both

Common Bonus Compliance Mistakes Indian Employers Make

After reviewing payroll compliance across businesses in Noida, Delhi NCR and across India, these are the errors that appear most often in statutory bonus processing. Notably, most of them are silent mistakes — they stay hidden until a labour inspection or employee complaint brings them to the surface.

❌ Mistake 1 — Using pre-2015 eligibility ceiling of ₹10,000

This is the most common and most expensive error. Consequently, employees earning between ₹10,001 and ₹21,000 are wrongly excluded from statutory bonus — creating liability that compounds year after year. Moreover, most businesses discover this gap only when facing a retrospective demand going back to 2014, at which point the total arrears can run into lakhs.

❌ Mistake 2 — Calculating bonus on actual gross salary

Some employers calculate bonus on the employee’s full basic or gross salary — which is incorrect. Instead, the calculation wage is capped at ₹7,000 per month or the applicable minimum wage, whichever is higher. As a result, using the actual salary distorts the bonus payout beyond what the Act requires and creates unnecessary liability.

❌ Mistake 3 — Not paying minimum bonus in a loss year

A common belief is that employers can skip bonus when the company makes a loss. However, the Act requires the minimum bonus of 8.33% even when there is no profit. Therefore, a loss-making business that skips bonus is in direct violation — and faces both criminal prosecution and full arrears once the matter surfaces during inspection.

❌ Mistake 4 — Missing the 30 November payment deadline

Many companies pay bonus in December or January as part of their year-end cycle — unaware that the payment deadline under the Act is 30 November for April-to-March accounting years. Consequently, the law treats late payment as wilful default and attracts criminal liability. In addition, interest charges apply on the delayed amount from the due date itself.

❌ Mistake 5 — Not maintaining Registers A, B and C

Even when bonus is paid correctly, missing statutory registers during a labour inspection is itself punishable. Furthermore, without Register B, the set on and set off calculations across years cannot be checked — creating disputes that are difficult to resolve without proper records. This is the same documentation risk that applies across other labour welfare compliance areas such as LWF and ESI.

❌ Mistake 6 — Not filing annual return in Form D by 31 December

Every employer must file the annual return in Form D with the Inspector within 30 days of the payment deadline — that is, by 31 December for April-to-March year businesses. Missing this filing triggers an automatic inspection notice in most states. Moreover, it adds to the overall compliance risk at a time when labour authorities are increasingly using digital data to identify non-compliant businesses proactively.

Payment of Bonus Act — Compliance Checklist for FY 2025-26

Use this checklist to check your statutory bonus compliance right now. If any item is unclear or unconfirmed — that is an active gap to fix before 30 November 2026.

Compliance Item	What to Verify
Business has 20+ employees?	Act applies — all provisions mandatory
Eligibility ceiling updated to ₹21,000/month?	Post-2015 figure — not ₹10,000
Calculation wage capped at ₹7,000 or min wage?	Check payroll system configuration
All employees with 30+ working days identified?	Including maternity, layoff and earned leave days
Minimum bonus 8.33% payable even in loss year?	No exceptions — mandatory regardless of profit
Allocable surplus calculated per First Schedule?	Determines if bonus above 8.33% is payable
Set on / set off from previous years accounted for?	Check Register B for carry forward balance
Bonus payment before 30 November 2026?	Hard deadline — late payment is wilful default
Registers A, B and C maintained and current?	Must be ready for labour inspection at all times
Annual return Form D filed by 31 December 2026?	Within 30 days of the 30 November payment deadline

How Statutory Bonus Fits Into Your Overall Payroll Compliance

Statutory bonus is just one part of a broader set of payroll compliance duties that every Indian employer must manage. In addition to the payment of bonus act, businesses must comply with PF, ESI, Professional Tax, Gratuity, and Labour Welfare Fund — each with its own deadlines, registers, and filing formats.

For instance, just as bonus eligibility changed with the 2015 amendment, gratuity calculation has its own formula and eligibility rules that employers frequently get wrong. Similarly, Professional Tax registration carries state-specific deadlines that are often missed by growing businesses. Furthermore, the Maternity Benefit Act creates separate payment and record-keeping duties for any business with 10 or more employees. Managing all of these together — accurately and on time — is what payroll management services are designed to handle.

Frequently Asked Questions About the Payment of Bonus Act India

Is statutory bonus the same as performance bonus?

No — they are completely separate. Statutory bonus under the payment of bonus act is a legal duty linked to profits and calculated as a percentage of wages. Performance bonus, on the other hand, is a discretionary payment based on individual or company results. Importantly, paying a performance bonus does not remove the statutory bonus duty. Both must be paid independently if both apply.

Does the Payment of Bonus Act apply to new startups?

New businesses are exempt during their first 5 accounting years — provided they do not make a profit in those years. However, if the new business earns a profit in any of the first 5 years, it must pay bonus for that profitable year. Therefore, startups that become profitable early are not fully exempt — bonus becomes payable from the first profitable accounting year.

Can an employer adjust customary bonus against statutory bonus?

Yes — the Act permits the employer to deduct any puja bonus or customary bonus already paid during the accounting year from the statutory bonus payable, provided such customary bonus was paid before the due date of statutory bonus. However, the employer cannot adjust salary advances or loans against the statutory bonus amount. Strictly speaking, only customary or puja bonus paid in that same accounting year qualifies for this deduction — salary advances and loans do not.

What minimum wage applies for the ₹7,000 vs minimum wage comparison?

After the 2015 amendment, the calculation wage is the higher of ₹7,000 per month or the minimum wage set by the appropriate government for the scheduled employment in which the employee works. Consequently, in states where the minimum wage for the relevant category exceeds ₹7,000, that minimum wage figure must be used. As a result, the actual minimum bonus payable varies by state and by employment category — making state-specific checks essential before finalising the bonus payout.

Does the Payment of Bonus Act apply to contract workers?

Contract workers directly employed by the principal employer and paid by the principal employer are covered by the Act if they meet the eligibility conditions. On the other hand, workers engaged through a contractor — where the contractor is the actual employer — are the contractor’s responsibility for bonus purposes. Nevertheless, in some states, principal employers have been held liable for bonus of contract workers when the contractor defaults. Therefore, always check the contractual arrangement carefully before excluding contract staff from bonus eligibility.

Is bonus received by an employee taxable?

Yes — statutory bonus is fully taxable as salary income under Section 17(1) of the Income Tax Act. Therefore, the employer must include the bonus amount in the employee’s Form 16 and deduct TDS in the month of payment. Notably, there is no tax exemption for statutory bonus — it forms part of the total taxable salary for the year.