Ask any HR manager who filed their Payment of Bonus Act annual return in 2025 and files it again this year, and they’ll tell you something feels off — the form still asks for the same numbers, but the Act it used to quote doesn’t legally exist as a standalone law anymore. Your auditor cites “Payment of Bonus Act, 1965.” Your labour law consultant now says “Code on Wages, 2019, Chapter IV.” Your junior HR exec is confused about which one to put in the offer letter template. This isn’t a paperwork quirk — since the Code on Wages came into force on 21 November 2025, statutory bonus in India is governed by a different Act altogether, even though the maths hasn’t changed much.
If you run payroll for a 20-500 person Indian company and you’re still calculating statutory bonus in a spreadsheet, this is the year that citation errors on your bonus policy actually get flagged. Here’s what changed, what didn’t, and exactly how to calculate it correctly in 2026.
TL;DR
- Statutory bonus is now governed by Chapter IV of the Code on Wages, 2019 (in force since 21 November 2025, central Rules notified 8 May 2026) — not the standalone Payment of Bonus Act, 1965, which stands repealed.
- The core numbers are unchanged: 8.33% minimum, 20% maximum of wages, for employees earning up to ₹21,000/month, calculated on a wage capped at ₹7,000/month or the state minimum wage, whichever is higher.
- The “set-on/set-off” mechanism — carrying forward surplus or shortfall for up to four accounting years — is retained in full under the Code.
- Bonus is still due within 8 months of the close of the accounting year. Use EZHRM’s free Bonus Calculator to get the exact payable amount instead of rebuilding the formula every October.
What Is Statutory Bonus Under the Code on Wages?
Statutory bonus is a mandatory annual cash payment that eligible employees in India are legally entitled to, calculated on wages and tied to an employer’s “allocable surplus” (broadly, distributable profit) for the accounting year. It is not the same as a Diwali gift, a performance bonus, or an ex-gratia payment — those remain entirely discretionary. Statutory bonus is a wage-linked legal floor an employer cannot contract out of, and since 21 November 2025 it lives in Chapter IV (Sections 26 to 40) of the Code on Wages, 2019, which absorbed and repealed the standalone Payment of Bonus Act, 1965 along with three other central laws.
For an HR team, the practical difference this year is mostly about correct citation and a few procedural updates under the central Rules notified in May 2026 — the entitlement itself, and the formula behind it, has carried over almost untouched. If you want to see this applied to your own headcount instead of reading through the Code section by section, EZHRM’s Bonus Calculator does the eligibility and payout math for you in seconds.
Who’s Eligible for Statutory Bonus in 2026?
An employee is eligible for statutory bonus if their monthly wages are ₹21,000 or below, and they have worked at least 30 days in the establishment during the accounting year. The obligation applies to factories and establishments employing 20 or more persons on any day during the accounting year (some states have notified a lower threshold of 10 through their Shops & Establishments Rules, so check your specific state before assuming the 20-employee floor applies).
Who’s excluded
- Employees dismissed for fraud, riotous or violent behaviour, or theft/misappropriation of company property — even if otherwise eligible on wages.
- Apprentices engaged under the Apprentices Act, 1961.
- Employees of establishments specifically exempted by the appropriate government (certain new units in their first five years, some public sector categories).
A common trap: a new employee joining in December is still eligible for that year’s bonus as long as they cross 30 working days before the accounting year closes — pro-rated for the days actually worked, not disqualified outright.
How to Calculate Statutory Bonus: The Formula
Bonus is calculated as a percentage of the employee’s wages, but not their actual salary if it exceeds ₹7,000/month — the calculation is capped at ₹7,000/month or the applicable state minimum wage, whichever is higher, even if the employee is eligible on an actual salary of ₹18,000 or ₹20,000.
| Component | Value |
|---|---|
| Eligibility ceiling | ₹21,000/month wages |
| Calculation ceiling | ₹7,000/month, or state minimum wage — whichever is higher |
| Minimum bonus | 8.33% of wages (or ₹100/year, whichever is higher; ₹60 for employees under 15) |
| Maximum bonus | 20% of wages, subject to available/allocable surplus |
| Minimum service required | 30 working days in the accounting year |
| Payment deadline | Within 8 months of the close of the accounting year |
Worked example: An employee earning ₹15,000/month, in a state where the applicable minimum wage for their category is ₹9,000/month, has their bonus calculated on ₹9,000 — not ₹15,000, and not ₹7,000. At the statutory minimum of 8.33%, that’s ₹9,000 × 8.33% × 12 = ₹8,996.40 for the year. If the company’s allocable surplus supports the full 20%, it rises to ₹21,600 for the year. This is exactly the kind of calculation that goes wrong in a manual spreadsheet the moment your state minimum wage changes mid-year — run it through the Bonus Calculator instead and you won’t miss the update.
Minimum vs Maximum: The Set-On, Set-Off Mechanism
Here’s the part most HR managers gloss over: the 8.33% minimum is payable even in a loss-making year — it is not contingent on profit. The 20% maximum, on the other hand, depends on “allocable surplus,” a defined portion of the employer’s profits computed under the Code’s Second and Fourth Schedules.
- Set-on: If allocable surplus in a year exceeds what’s needed to pay the maximum 20% bonus, the excess is carried forward (“set on”) for up to four succeeding accounting years, to be used if a future year falls short.
- Set-off: If allocable surplus is insufficient to pay even the minimum 8.33%, the shortfall is carried forward as a deficiency, to be adjusted against surplus in future years.
- This mechanism is unchanged from the old Payment of Bonus Act and continues in full under the Code on Wages — finance teams still need to maintain the allocable surplus computation year over year, not just the current year’s number.
Statutory Bonus vs Festival Bonus vs Ex-Gratia
This is the single most common confusion in the run-up to Diwali, and it’s worth spelling out in a table because the three get lumped together in casual conversation but are legally distinct.
| Type | Legal basis | Mandatory? | Calculation base |
|---|---|---|---|
| Statutory bonus | Code on Wages, 2019 (Ch. IV) | Yes, for eligible employees | 8.33%-20% of wages, capped at ₹7,000 or minimum wage |
| Festival/Diwali bonus | Company policy | No — discretionary | Whatever the company decides (fixed amount, flat %) |
| Ex-gratia / performance bonus | Company policy / employment contract | No — discretionary | KRA/appraisal linked, or management discretion |
Some employers pay a discretionary bonus and treat it as inclusive of the statutory minimum — that’s legally acceptable only if it’s clearly documented as such in the policy and the amount paid is not less than what’s statutorily due. Silently assuming a ₹10,000 Diwali gift “covers” the statutory bonus, without a written adjustment policy, is where labour department disputes usually start.
Filing and Payment Deadlines HR Can’t Miss
- Compute allocable surplus for the accounting year once audited financials are available.
- Calculate eligible employees’ bonus at 8.33% (minimum, mandatory) or up to 20% depending on surplus, using the ₹7,000/minimum-wage calculation ceiling.
- Disburse the bonus within 8 months of the close of the accounting year (i.e., by around 30 November for a April-March accounting year, though this can vary by extension order).
- Maintain the prescribed registers — under the Code on Wages Rules, establishments must maintain records of wages, bonus computation, and set-on/set-off amounts, largely mirroring the old Form A, B and C registers.
- File the annual return in the format prescribed under the central or state Rules, within the timeline your state labour department specifies — most states still expect this shortly after the bonus payment deadline.
Where HR Managers Get This Wrong
- Citing the repealed Payment of Bonus Act, 1965 in offer letters and policies instead of the Code on Wages, 2019 — a cosmetic issue until an auditor or labour inspector flags it.
- Calculating bonus on actual salary instead of the ₹7,000-or-minimum-wage calculation ceiling, which overpays significantly for staff earning ₹15,000-21,000.
- Ignoring the state minimum wage comparison — in states where the relevant minimum wage exceeds ₹7,000, the calculation ceiling is the higher minimum wage, not a flat ₹7,000.
- Treating discretionary festival bonus as automatic statutory compliance without a documented adjustment policy.
- Skipping the set-on/set-off computation entirely and just paying 8.33% every year, even when allocable surplus would justify (or require averaging against) a different rate.
- Missing the 8-month payment deadline, which invites both employee grievances and potential penalties under the Code’s compliance provisions.
FAQs on Bonus Calculator India 2026
Is statutory bonus still governed by the Payment of Bonus Act, 1965?
No. Since 21 November 2025, statutory bonus is governed by Chapter IV of the Code on Wages, 2019, which repealed the standalone Payment of Bonus Act, 1965. The eligibility and calculation rules carried over largely unchanged.
What is the minimum bonus an employer must pay even in a loss-making year?
8.33% of the employee’s wages (calculated on the ₹7,000-or-minimum-wage ceiling), or ₹100 for the year, whichever is higher — this is payable regardless of whether the company made a profit.
Can an employer pay bonus only to some eligible employees and not others?
No. If an employee meets the eligibility ceiling (₹21,000/month wages) and the 30-day minimum service requirement, they are legally entitled to bonus — it cannot be selectively withheld.
Does a Diwali or festival bonus count as statutory bonus?
Only if the company’s written policy explicitly states the festival payment is inclusive of, and not less than, the statutory bonus due. Otherwise, they are treated as two separate payments.
What happens if my company doesn’t have enough allocable surplus to pay 20%?
You still must pay the 8.33% minimum. Any shortfall against a higher rate is not carried as a liability — the set-on/set-off mechanism instead smooths future years’ surplus against future shortfalls, not the current year’s minimum obligation.
Is the ₹21,000 eligibility ceiling likely to be revised soon?
There’s no confirmed revision as of August 2026. The ceiling was last raised from ₹10,000 to ₹21,000 in 2016, and any change would come through a Code on Wages Rules amendment — worth checking labour.gov.in periodically rather than assuming it’s static forever.
Stop Recalculating Bonus by Hand Every October
Between the calculation ceiling, the set-on/set-off carry-forward, and now a citation change from the old Act to the Code on Wages, statutory bonus has more moving parts than a single spreadsheet formula can reliably hold. Run your numbers through EZHRM’s free Bonus Calculator before you finalise this year’s payout, and if bonus is just one of a dozen compliance calculations you’re juggling manually, take a look at how EZHRM’s compliance management handles bonus, PF, ESI and gratuity together.
For more free calculators — CTC breakup, gratuity, leave encashment and more — visit our free HR calculators hub, and for more guides like this one, browse the EZHRM blog.
Sources: Ministry of Labour & Employment, Government of India; Office of the Chief Labour Commissioner (Central).