Festive bonus and statutory bonus in India: a practical guide for employers
The festive season is when most Indian employers think about bonus. It is also when two very different things get confused: the statutory bonus that the law requires, and the festive or ex gratia bonus that many companies pay by choice.
Since 21 November 2025, statutory bonus is governed by Chapter IV of the Code on Wages, 2019, which replaced the Payment of Bonus Act, 1965. Most of the familiar rules carried over, but there are a few changes employers should know.
Which establishments must pay statutory bonus
The bonus provisions apply to establishments where 20 or more persons are employed, or were employed on any day during the accounting year. Under the old Act, factories were covered regardless of headcount. Check your coverage if you run a small factory.
Which employees are eligible
An employee is eligible if their wages are within the notified ceiling and they have worked for at least 30 days in the accounting year. The thresholds employers have long used continue to apply: eligibility for employees earning up to Rs 21,000 per month, with bonus calculated on Rs 7,000 per month or the applicable minimum wage, whichever is higher. Confirm the latest notification for your establishment, because minimum wages differ by state and sector.
How much to pay
- Minimum bonus: 8.33 per cent of wages earned in the year, or Rs 100, whichever is higher. This is payable even if the company made a loss.
- Maximum bonus: 20 per cent of wages, depending on the allocable surplus.
- Allocable surplus: 67 per cent of available surplus for most establishments and 60 per cent for banking companies.
- Set-on and set-off: surplus above the maximum, or a shortfall below the minimum, is carried forward up to the fourth accounting year.
A simple example
Suppose an eligible employee's wages are Rs 18,000 per month and the applicable minimum wage for their role is Rs 12,000 per month. Bonus is calculated on the higher of Rs 7,000 and the minimum wage, so on Rs 12,000. At the minimum rate of 8.33 per cent, the annual bonus is Rs 12,000 x 12 x 8.33 per cent, which is about Rs 11,995. These figures are for illustration only.
When bonus must be paid
Statutory bonus must be paid within eight months of the close of the accounting year. For a company following the April to March year, bonus for 2025-26 is due by 30 November 2026. Payment should be made by credit to the employee's bank account.
Who can be disqualified
An employee dismissed for fraud, riotous or violent behaviour on the premises, theft, misappropriation or sabotage of property, or who has been convicted of sexual harassment, is not entitled to bonus for that year. The sexual harassment ground is new under the Code.
Where festive bonus fits in
A Diwali, Durga Puja, Onam or other festive bonus is usually paid at the employer's discretion. It is separate from statutory bonus, though in most cases a customary or festival bonus paid during the year can be adjusted against statutory bonus if your records show it clearly. Decide your approach before the season, document it, and explain it to employees so nobody expects two payments when you intend one.
Remember that bonus is taxable as salary. Include it in the month's payroll so TDS is calculated correctly, and reflect it in Form 16.
A pre-festive bonus checklist
- Confirm whether the bonus provisions apply to each establishment
- List eligible employees against the wage ceiling and the 30 day rule
- Check the applicable minimum wage for each state and role
- Calculate allocable surplus with your finance team and decide the bonus percentage
- Decide whether a festive bonus will be adjusted against statutory bonus and document it
- Run bonus through payroll so TDS and statutory records are correct
- Pay before the eight month deadline and keep the bonus register up to date
How SimplyHR can help
SimplyHR's payroll specialists calculate statutory bonus, maintain bonus registers and process festive payouts with correct TDS. Our payroll software handles bonus and arrear processing automatically, and our compensation consultants can help you design an incentive plan that rewards performance year-round.
This article is general information and not legal advice. Bonus rules can vary by establishment and state, so confirm the latest notifications before paying.