Payment of Bonus Act and the Code on Wages in 2026: Eligibility, 8.33%–20%, Ceilings and Due Date

Every year between Dasara and Diwali, payroll teams across India ask the same questions: who gets statutory bonus, how much, on what salary, and by when. The answers moved house on 21 November 2025, when the Payment of Bonus Act, 1965 was repealed and its rules folded into the Code on Wages, 2019. Then, on 25 August 2026, the Labour Ministry notified the wage limits under the Code. This guide is for business owners, HR and accounts teams. It explains eligibility, the minimum and maximum bonus, the two wage ceilings, how allocable surplus works, the due date, penalties and common mistakes — with worked examples in rupees.

Quick answer

Statutory bonus now sits in Chapter IV of the Code on Wages, 2019 (the Payment of Bonus Act was repealed on 21 November 2025). Establishments with 20 or more persons must pay employees earning up to ₹21,000 a month who worked 30 days a bonus of 8.33% to 20%, credited to their bank account within 8 months of the close of the accounting year.

• Minimum: 8.33% of wages or ₹100, whichever is higher — payable even in a loss year

• Maximum: 20% of wages, depending on allocable surplus

• Calculation ceiling: ₹7,000 a month or the minimum wage, whichever is higher — in practice, the minimum wage

• Allocable surplus: 67% of available surplus (60% of available surplus for banks)

• For the year ending 31 March 2026, pay by 30 November 2026

From the Bonus Act to the Code on Wages

The Payment of Bonus Act, 1965 required establishments with 20 or more people to share profits with lower-paid employees through an annual bonus. Its last major change came in 2015, when the eligibility limit rose to ₹21,000 a month and the calculation ceiling to ₹7,000 or the minimum wage, whichever was higher.

The Code on Wages, 2019 kept that architecture almost intact in sections 26 to 41 — minimum and maximum bonus, allocable surplus, set-on and set-off, relief for new establishments, exclusions and the eight-month deadline. Four things changed:

• The wage limits are left to notification. The Code doesn't name ₹21,000 or ₹7,000; each government fixes them.
• "Wages" means the Code's definition. Bonus was calculated on basic pay and dearness allowance under the 1965 Act. Under the Code, wages also include items such as special allowance, and any excluded allowances above 50% of pay are added back.
• Payment must be by bank credit. Section 39 says bonus is paid by crediting the employee's bank account.
• A new disqualification. An employee dismissed after conviction for sexual harassment loses bonus, alongside fraud, riotous or violent behaviour, and theft, misappropriation or sabotage.

Section 69, the savings clause, keeps the old notifications alive as far as they don't conflict with the Code, until they are replaced.

The August 2026 notifications

On 25 August 2026 the Ministry of Labour and Employment issued two notifications under section 26:

• S.O. 4711(E) — employees drawing wages of up to ₹21,000 a month are eligible for bonus under section 26(1).
• S.O. 4710(E) — for eligible employees whose wages exceed ₹7,000 a month, bonus is calculated as if their wages were ₹7,000 a month or the minimum wage, whichever is higher.

Both apply retrospectively from 21 November 2025. They cover establishments for which the central government is the appropriate government: railways, mines, oilfields, major ports, air transport, telecom, banks and insurance companies, corporations set up by central Acts and their contractors.

For everyone else — the vast majority of MSMEs — the state government must issue its own notification. Until it does, employers generally continue the same ₹21,000 and ₹7,000 limits fixed under the repealed Act, through the savings clause. That's the safe reading, because a lower limit would leave employees worse off than before. Check your state labour department's site before you finalise this year's bonus.

Statutory bonus — the numbers (2026)

₹21,000 a month

Eligibility limit

S.O. 4711(E), central sphere

₹7,000 or MW

Calculation ceiling

Whichever is higher — S.O. 4710(E)

8.33% – 20%

Range of bonus

Section 26

8 months

Deadline after year-end

Section 39

Who must pay and who is eligible

Establishments covered. The bonus chapter applies to every establishment employing 20 or more persons on any day during the accounting year. A department, branch or undertaking counts as part of the same establishment unless it keeps a separate balance sheet and profit and loss account.

Who is excluded. Section 41(1) leaves out employees of LIC and the RBI, seafarers, registered dock workers, government departments and local authorities, the Indian Red Cross and similar institutions, universities and educational institutions, non-profit hospitals, chambers of commerce and social welfare institutions, some public financial institutions and inland water transport on routes through other countries. Public sector establishments are covered only if at least 20% of their income comes from activities in competition with the private sector.

Eligible employees. An employee qualifies if:

1. their wages don't exceed the notified limit — ₹21,000 a month;
2. they have worked at least 30 days in the accounting year; and
3. they haven't been dismissed for fraud, riotous or violent behaviour on the premises, theft, misappropriation or sabotage, or after conviction for sexual harassment.

"Employee" under the Code is broad and includes skilled, unskilled, manual, supervisory, technical and clerical staff, so a supervisor earning ₹20,000 qualifies just as a helper does. Contract workers are paid bonus by their contractor; under the central rules, if the contractor fails to pay the minimum bonus, the principal employer must pay it on written notice from the workers or their union.

Minimum bonus, maximum bonus and the calculation base

Minimum bonus. Every eligible employee gets at least 8.33% of wages or ₹100, whichever is higher, whether or not the business made a profit or has any allocable surplus. Only establishments in their first five years (see below) are exempt in loss years.

Maximum bonus. If the allocable surplus is more than the total minimum bonus, the employer must pay bonus in proportion to wages, up to 20% of wages. Any productivity- or production-linked bonus agreed with employees must also fit within that 20% ceiling.

Calculation base. For an eligible employee whose wages are above ₹7,000 — almost everyone — bonus is computed on ₹7,000 a month or the minimum wage, whichever is higher. Section 26(2) builds the minimum wage into the Code itself, so even if a state still uses ₹7,000, the minimum wage for the employee's category is the real base. A ₹20,000-a-month supervisor in a state where the skilled minimum is ₹14,500 is paid bonus on ₹14,500 a month, not on ₹20,000 and not on ₹7,000.

Part-year workers. Section 27 reduces the minimum bonus proportionately for an employee who hasn't worked all the working days. Section 28 says days of lay-off, paid leave, temporary disablement from a work accident, and paid maternity leave count as days worked.

Adjustments. Under section 37, any puja bonus, festival bonus or interim bonus already paid in the year can be deducted from the statutory bonus. Under section 38, if an employee is found guilty of misconduct that caused financial loss, the loss can be recovered from that year's bonus.

Worked example: minimum bonus on the minimum wage

A 28-person furniture unit closes its accounts on 31 March. Assume the minimum wage for each worker's category was the same all year: ₹13,000 a month for semi-skilled workers and ₹14,500 for skilled workers. (Use your own state's notified figure; for example Gujarat's zone-1 unskilled rate is ₹13,637 from October 2026.)

Two points stand out. First, Vikram and Salma get the same bonus despite different salaries, because both are computed on the skilled minimum wage. Second, Neha's eligibility depends on wages as the Code defines them, not her CTC; an employee with a gross of ₹28,000 whose basic, DA and special allowance total ₹19,000 (and whose other allowances are within the 50% cap) is eligible.

Allocable surplus: when you must pay more than 8.33%

Bonus above the minimum depends on profit, measured through three steps.

1. Gross profit for the accounting year, computed in the manner the central rules prescribe (separate methods for banking companies and others).
2. Available surplus = gross profit minus prior charges: depreciation allowed under section 32(1) of the Income-tax Act, the direct tax payable (computed under section 35, ignoring brought-forward losses and arrears of depreciation), and any other sums the rules list. From the second year on, the tax saved because of last year's bonus payment is added back.
3. Allocable surplus = 67% of available surplus, or 60% of available surplus for a banking company.

Audited company accounts are generally accepted; in a dispute, the authority can call for the balance sheet but must keep it confidential.

Set-on and set-off. If allocable surplus exceeds the maximum bonus, the excess is carried forward ("set on") — capped at 20% of the year's total wages — up to the 4th following accounting year, to fund future bonus. If there is no surplus or it falls short of the minimum bonus, the shortfall is carried forward ("set off") for the same period. When both exist, the oldest year's balance is used first.

From profit to bonus

Step 1

Gross profit (rules method)

Step 2

Less prior charges

Depreciation, direct tax

Step 3

Available surplus

Step 4

× 67% (60% banks)

Allocable surplus

Step 5

Compare with 8.33% and 20%

Set on / set off the difference

Example. Suppose the furniture unit's eligible employees have a combined annual bonus base of ₹46,80,000. Minimum bonus at 8.33% is ₹3,89,844; maximum at 20% is ₹9,36,000.

• Gross profit ₹30,00,000, less depreciation ₹6,00,000 and direct tax ₹6,09,000, gives available surplus of ₹17,91,000. Allocable surplus at 67% is ₹12,00,000 (rounded). That exceeds the maximum, so the unit pays 20% (₹9,36,000) and carries ₹2,64,000 forward as set-on.
• If allocable surplus were only ₹6,00,000, the unit would pay 6,00,000 ÷ 46,80,000 = 12.82% of each employee's bonus base.
• If the unit made a loss, it still pays the 8.33% minimum (₹3,89,844), and the shortfall is set off against future years' surplus.

New establishments and the first five years

Section 26(6) gives a start-up period. In the first five accounting years after the year in which the employer first sells goods or renders services, bonus is payable only for years in which the establishment makes a profit — after providing for depreciation and fully setting off earlier losses and arrears of depreciation. Set-on and set-off don't apply in those years. In the sixth and seventh years, modified set-on and set-off rules apply, and from the eighth year the normal rules apply. Sales during trial runs of a factory or the prospecting stage of a mine don't start the clock. The same relief applies to new departments, undertakings or branches set up by existing establishments.

Due date, payment and records

Bonus must be credited to each employee's bank account within 8 months of the close of the accounting year. For a year ending 31 March 2026 the deadline is 30 November 2026; many employers pay earlier so that it reaches staff before Diwali. The appropriate government can extend the period on application for sufficient reasons, but the total extension can't exceed two years. If there is a dispute over bonus pending before an authority, bonus must be paid within one month of the award or settlement becoming enforceable — but even then, the 8.33% minimum must still be paid within the eight months.

Keep records of each employee's wages, days worked, bonus computed, deductions under sections 37 and 38, and the date and mode of payment, in the registers your state's rules under the Code prescribe. Several states, including Andhra Pradesh, Bihar, Gujarat, Rajasthan, Uttarakhand and Uttar Pradesh, have final Code on Wages rules; others are still on drafts.

Statutory bonus, ex-gratia and tax

Statutory bonus is different from the ex-gratia, festival or performance bonus many firms pay to staff above the eligibility limit. Those are contractual: the Code doesn't fix their amount, but once promised in an appointment letter or policy they become part of the terms of employment and must be paid as promised. If you pay a festival bonus to eligible employees during the year, record it clearly so it can be adjusted against statutory bonus under section 37.

For income tax, any bonus — statutory or not — is part of the employee's salary in the year it is received. Deduct TDS on it in the month of payment along with regular salary, and show it as a separate line on the wage slip so employees can see how it was worked out.

Claims and penalties

An employee, a group of employees or a trade union can claim unpaid bonus before the authority under section 45 within 3 years. The authority can order payment plus compensation of up to 10 times the claim. Paying an employee less than the amount due under the Code — including bonus — is punishable under section 54 with a fine of up to ₹50,000, and a repeat within five years can mean up to ₹1 lakh fine and/or 3 months' imprisonment. Inspector-cum-Facilitators must first give you a chance to comply for most other breaches. Our Code on Wages guide explains inspections and compounding.

Common mistakes

Calculating on ₹7,000. Since 2015 the base has been the higher of ₹7,000 and the minimum wage. Paying 8.33% of ₹7,000 (₹7,000 a year) to a worker whose minimum wage is ₹13,000 underpays them by about ₹6,000.

Using basic pay to test eligibility. Eligibility depends on "wages" under the Code, which may be higher than basic. Re-test each employee after your salary restructure.

Skipping bonus in a loss year. Only establishments in their first five years get that relief. Everyone else pays 8.33%.

Paying in cash. Section 39 requires bank credit.

Forgetting contract workers. Check that contractors pay bonus; the principal employer is on the hook if they don't.

Annual statutory bonus checklist

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• Confirm the establishment had 20 or more persons on any day in the year
• Check your state's notified eligibility limit and calculation ceiling (central sphere: ₹21,000 / ₹7,000 or minimum wage)
• Recompute each employee's 'wages' under the Code and test eligibility
• Count days worked, adding paid leave, lay-off, maternity and accident absence
• Find the minimum wage for each employee's category to get the bonus base
• Compute gross profit, available surplus and allocable surplus
• Apply set-on or set-off from the previous four years
• Deduct festival or interim bonus already paid
• Credit bonus to bank accounts within eight months of year-end
• Collect proof that contractors paid bonus to their workers

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Official links

• The Code on Wages, 2019 (India Code PDF)Chapter IV — sections 26 to 41
• Ministry of Labour & EmploymentNotifications under the Code on Wages
• PIB — four Labour Codes made effective
• Chief Labour Commissioner (Central) — minimum wagesCentral-sphere minimum wage, the bonus base

What to do next

Pull up last year's bonus sheet and redo it under the Code: new wage definition, minimum-wage base, and the 30 November deadline. Look up the minimum wage for each category in your state — our Gujarat minimum wage and central minimum wage guides are a good start — and record the bonus as a separate line on the wage slip with our salary slip generator. For the bigger picture, see our hub on the new labour codes.

This is general information, not legal or tax advice — confirm on the official source or with a professional.

Frequently asked questions

Is the Payment of Bonus Act, 1965 still in force?

No. It was repealed on 21 November 2025 and its provisions moved into Chapter IV (sections 26 to 41) of the Code on Wages, 2019. The structure is the same — minimum bonus, maximum bonus, allocable surplus, set-on and set-off — but bonus is now computed on the Code's wider definition of 'wages'.

Who is eligible for statutory bonus?

An employee who has worked at least 30 days in the accounting year and whose wages do not exceed the notified limit — ₹21,000 a month for central-sphere establishments under the August 2026 notification. The establishment must employ 20 or more persons. Employees dismissed for fraud, violence, theft or sabotage, or convicted of sexual harassment, are disqualified.

What is the minimum and maximum bonus?

The minimum is 8.33% of wages or ₹100, whichever is higher, payable even if the business made a loss. If the allocable surplus is larger, bonus rises in proportion to wages, up to a maximum of 20% of wages. Productivity-linked bonus agreed with employees counts within the same 20% cap.

What is the bonus calculation ceiling?

Where an eligible employee's wages are above the notified amount, bonus is computed as if wages were ₹7,000 a month or the minimum wage, whichever is higher. Because every state's minimum wage is now well above ₹7,000, the minimum wage for the employee's category is in practice the base for most workers.

What is the last date for paying bonus?

Bonus must be credited to the employee's bank account within 8 months of the close of the accounting year. For a financial year ending 31 March 2026, that means by 30 November 2026. The government can extend the deadline on application, but never beyond two years in total.

Does the bonus rule apply to establishments with fewer than 20 employees?

No. Section 41(2) applies the bonus chapter to establishments employing 20 or more persons on any day in the accounting year. Once covered, the obligation continues for that year even if headcount drops. Smaller firms often pay a festival bonus voluntarily, which is a contractual payment rather than statutory bonus.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 9 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify

1. 1.The Code on Wages, 2019 (No. 29 of 2019) — Chapter IV, sections 26–41 — India Code, Legislative Department · accessed 9 October 2026
2. 2.Government makes the four Labour Codes effective (21 Nov 2025) — PIB — Ministry of Labour & Employment · accessed 9 October 2026
3. 3.Bonus payout under the Code on Wages (Ergo, 4 September 2026) — Khaitan & Co · accessed 9 October 2026
4. 4.Centre notifies Bonus eligibility and Calculation rules under Code on Wages, 2019 — SCC Online · accessed 9 October 2026
5. 5.MoLE determines ₹21,000 wage ceiling for bonus eligibility — TeamLease RegTech · accessed 9 October 2026
6. 6.Employment Law Bulletin, October 2026 — Shardul Amarchand Mangaldas & Co · accessed 9 October 2026
7. 7.Government of India notifies final Rules on four Labour Codes (10 May 2026) — KPMG in India · accessed 9 October 2026