Statutory Bonus in India: Meaning, Eligibility, Calculation, and Payment Rules (FY 2026-27)

Every October, the same question lands in an HR inbox.

“Why is my bonus lower than my colleague’s?”

“Will I still receive it if I resigned?”

“What exactly makes a bonus statutory?”

If you’ve managed payroll through even one bonus cycle, you’ve probably answered every one of them. And while the questions sound simple, getting the answers wrong can mean more than an unhappy employee. It can mean a payroll error, a compliance lapse, or an audit finding.

Statutory bonus is a legally mandated annual payment for eligible employees, generally ranging from 8.33% to 20% of the applicable wage base. It is different from a performance bonus or discretionary incentive because an employer cannot simply decide to skip it when business conditions are poor.

FY 2026-27 also marks an important transition. Since the commencement of the Code on Wages, 2019 on 21 November 2025, the Payment of Bonus Act, 1965 has been repealed, and statutory bonus now falls under Chapter IV of the Code.

Key Takeaways:

1. Statutory bonus is mandatory for eligible employees in establishments employing 20 or more people.

2. Employees qualify if their Basic Salary + DA is ₹21,000 or less per month and they have worked at least 30 days in the accounting year.

3. Bonus ranges from 8.33% to 20% and is calculated on Basic Salary + DA, subject to a ₹7,000 calculation ceiling or the applicable minimum wage, whichever is higher.

4. Employers must pay the bonus within eight months from the close of the accounting year and maintain statutory records (Forms A, B, C, and D).

5. Since 21 November 2025, statutory bonus is governed by Chapter IV of the Code on Wages, 2019, replacing the repealed Payment of Bonus Act, 1965, although the core calculation and eligibility rules remain largely unchanged.

The calculation framework remains largely familiar, but many HR policies and payroll documents still carry references to the old Act. This guide explains what changed, what stayed the same, and how HR and payroll teams should manage statutory bonus for FY 2026-27.

What is Statutory Bonus in India?

Statutory bonus is a mandatory annual payment owed to eligible employees under India’s wage laws. It is linked to the establishment’s financial performance and statutory surplus framework, but eligible employees remain entitled to a minimum bonus even when the employer has no allocable surplus.

That makes it very different from an incentive bonus.

An incentive or performance bonus rewards individual or team performance and may depend on targets set by the employer. Statutory bonus is a legal entitlement that depends on the applicable law, employee eligibility, and the establishment’s financial position.

The two can coexist. An employee may receive a statutory bonus because the law requires it and a separate performance bonus because the employer’s compensation policy provides for it.

Statutory Bonus vs Incentive Bonus vs Ex-Gratia

An employee above the statutory eligibility ceiling may still receive an employer-funded bonus or ex-gratia payment. The difference is that such a payment is not statutory bonus.

Which Law Governs Statutory Bonus in FY 2026-27?

This is where many existing articles and internal policies are now outdated.

The Payment of Bonus Act, 1965 was repealed following the commencement of the Code on Wages, 2019 on 21 November 2025. Statutory bonus is now governed under Chapter IV of the Code on Wages.

However, the transition did not completely rewrite the bonus framework.

The important point for HR teams is simple: don’t continue describing the Payment of Bonus Act, 1965 as the current governing law. It remains relevant because existing policies, forms, and search queries still refer to it, but bonus administration for FY 2026-27 should reflect the Code on Wages framework.

You can still refer employees to Keka’s Payment of Bonus Act 1965 compliance guide for the historical and legacy framework, while updating internal policies to reflect the current legal position.

Who is Eligible for Statutory Bonus?

Statutory bonus eligibility generally comes down to three checks:

1. Is the establishment covered?

2. Does the employee fall within the applicable wage ceiling?

3. Has the employee worked for at least 30 days during the accounting year?

Establishments With 20 or More Employees

The familiar applicability threshold covers factories and establishments employing 20 or more persons.

Once an establishment becomes covered, payroll teams should treat bonus as a recurring statutory obligation and track the relevant employee population, calculation basis, payment records, and compliance documentation.

₹21,000 Eligibility Ceiling

The established eligibility ceiling is ₹21,000 per month based on Basic Salary + Dearness Allowance.

This is an important distinction because eligibility should not be determined using gross salary or total CTC.

An employee earning ₹30,000 in gross monthly salary could still fall within the statutory eligibility criteria if the relevant Basic Salary and DA are within the applicable ceiling. At the same time, an employee with Basic Salary + DA above the ceiling is not entitled to statutory bonus merely because their total compensation is structured differently.

30-Day Working Requirement

An employee must generally have worked for at least 30 days during the accounting year to qualify.

That applies to new joiners and employees who leave during the year. You don’t need a full year of service to qualify.

How is Statutory Bonus Calculated?

The most common calculation error is confusing the eligibility ceiling with the calculation ceiling.

They are different.

An employee may qualify because their Basic Salary + DA falls within the ₹21,000 eligibility threshold. The actual bonus calculation may still use a lower wage base.

The general formula is:

Statutory Bonus = Applicable Basic Salary + DA × Bonus Percentage

The calculation is subject to the applicable ceiling, generally ₹7,000 or the applicable minimum wage, whichever is higher.

Case 1: Basic Salary + DA Below ₹7,000

Suppose an employee earns:

Basic salary: ₹5,000

Dearness Allowance: ₹1,500

Total Applicable Wage: ₹6,500

Bonus Rate: 10%

Bonus = ₹6,500 x 10% = ₹650

Case 2: Basic Salary + DA Above ₹7,000

Suppose an employee earns:

Basic salary: ₹10,000

Dearness allowance: ₹4,000

Total applicable wage: ₹14,000

Bonus rate: 15%

The calculation does not automatically use ₹14,000. Where the ₹7,000 ceiling applies:

Bonus = ₹7,000 × 15% = ₹1,050

Minimum Wage Can Change the Calculation Base

Where the applicable minimum wage exceeds ₹7,000, the minimum wage may become the relevant calculation base.

This is particularly important for employers operating across multiple states or industries.

Tip: Run the eligibility test and the calculation test separately. First check whether the employee qualifies, then determine the correct wage base for the bonus calculation.

What is the Minimum and Maximum Statutory Bonus?

The statutory bonus range runs from:

• Minimum: 8.33%

• Maximum: 20%

The minimum applies even where the employer has no allocable surplus, subject to the applicable statutory framework.

The actual percentage above the minimum depends on the available surplus and the calculation rules applicable to the establishment.

An employer cannot simply choose 20% because it is a popular number or reduce an eligible employee’s bonus below the statutory minimum because profits were weak.

The financial position of the establishment becomes relevant through the allocable surplus and carry-forward mechanism.

What are Set-On and Set-Off in Statutory Bonus?

Set-on and set-off prevent statutory bonus from fluctuating wildly from one year to another.

Set-On

When an establishment has enough allocable surplus to support a bonus above the statutory maximum of 20%, the excess does not simply disappear.

The excess can be carried forward as set-on for future years, subject to the applicable statutory limits.

Set-Off

When the available surplus is insufficient to pay the statutory minimum, the shortfall may be carried forward as set-off.

The set-on and set-off mechanism allows surplus and deficiency to be adjusted across accounting years within the applicable carry-forward period.

For HR and payroll teams, this means the bonus percentage should not always be calculated as a standalone annual exercise. Finance records from earlier years may affect the current year’s position.

When Must Statutory Bonus Be Paid?

Statutory bonus must generally be paid within eight months from the close of the accounting year.

For an accounting year ending on 31 March, the standard deadline falls on 30 November.

Many employers distribute bonus around Diwali. That’s a common payroll practice, but Diwali itself is not the statutory deadline.

What is an Advance Statutory Bonus?

Some employers pay a portion of the expected bonus before the final annual calculation is completed.

The payment can be processed as an advance and adjusted against the final statutory entitlement.

In practice, bonus may be handled in two ways:

• Paid as a recurring component alongside monthly salary

• Paid as a lump sum or arrear after the final calculation

Tip: If bonus is paid in advance or monthly, reconcile the total amount against the final statutory entitlement before the payment deadline.

When Can Employee Lose Statutory Bonus Entitlement?

Eligibility does not mean the entitlement can never be lost.

The law provides specific grounds for disqualification.

Title: When Statutory Bonus Entitlement is Lost:

1. Fraud

2. Theft

3. Violent Misconduct

4. Sexual Harassment

An employee may lose statutory bonus entitlement when dismissed for serious misconduct covered by the applicable provisions.

The traditional grounds include fraud, riotous or violent behaviour at the establishment, and theft, misappropriation, or sabotage of employer property.

The current Code framework also introduces a sexual-harassment-related disqualification ground that should be reflected in updated HR policies.

A separate deduction mechanism may apply where misconduct causes the employer a direct financial loss. That should not be confused with complete disqualification from the entire bonus.

Will an Employee Receive Statutory Bonus After Resigning?

Yes. Resignation by itself does not cancel statutory bonus entitlement.

An employee who has worked for at least 30 days during the accounting year can remain eligible for a proportionate bonus for the period worked, subject to the applicable eligibility and disqualification rules.

This is relevant for:

• Employees who resign mid-year

• Employees serving their notice period

• New joiners

• Employees who leave before the bonus payout date

The bonus calculation can be reduced proportionately based on the period worked.

A resignation does not automatically remove an employee from the bonus cycle. HR teams should include eligible exiting employees in the relevant payroll and full-and-final review.

Is Statutory Bonus Part of CTC?

In many organizations, yes.

Statutory bonus is often included as part of the employee’s overall Cost to Company, particularly where the organization structures the annual compensation package around expected statutory obligations.

Candidates should therefore read their offer letter carefully to understand whether the quoted CTC already includes the statutory bonus component.

How Does it Appear on Salary Slip?

Statutory bonus may appear:

• As a monthly accrual or recurring salary component

• As an annual or periodic lump-sum payment

A monthly structure does not necessarily change the underlying annual entitlement. Payroll should still reconcile the total amount against the final statutory calculation.

Is Statutory Bonus Taxable?

Yes. Statutory bonus is generally taxable as salary income.

The amount becomes part of the employee’s taxable income and can affect the TDS calculation for the relevant financial year.

Where a bonus is received as arrears, the employee may be eligible for applicable tax relief under Section 89, subject to the relevant conditions.

How is Statutory Bonus Reported?

Statutory bonus is included within salary-related taxable income and reflected through the applicable salary tax reporting process.

Employees should not assume that a payment being legally mandatory makes it tax-free.

Who is Responsible for Paying Statutory Bonus to Contract Workers?

Contract labour creates a separate compliance question.

Under the existing framework reflected in the source draft, the contractor is generally responsible for statutory bonus payable to employees engaged through the contractor, rather than the principal employer automatically carrying the obligation.

This distinction has been supported by judicial decisions.

However, the position should be monitored closely as the broader wage-code rules evolve. Draft provisions have discussed circumstances in which a principal employer could face a fallback responsibility if a contractor fails to pay the minimum bonus.

For HR and procurement teams, the practical takeaway is to address bonus obligations clearly in staffing contracts rather than waiting for a dispute.

A Simple Vendor Compliance Checklist

Before the bonus cycle:

• Confirm which entity employs the worker

• Confirm who runs payroll

• Review the contractor’s statutory compliance obligations

• Obtain evidence of compliance where appropriate

What are the Penalties for Non-Payment of Statutory Bonus?

Statutory bonus is not optional where the law applies.

The legacy penalty framework provided for:

• Imprisonment for up to six months

• A fine up to ₹1,000

• Or both

Compliance obligations also extend beyond payment.

Employers have traditionally maintained:

• Form A: Computation of allocable surplus

• Form B: Set-on and set-off

• Form C: Bonus payable and payments made

• Form D: Annual return

The transition to the Code on Wages does not make payroll documentation less important. If anything, FY 2026-27 is a good time to review whether your bonus records and internal policy language still refer to the correct legal framework.

For related deadlines across payroll and employment compliance, refer to Keka’s statutory compliance guide.

Bonus Compliance Checklist

Before closing the bonus cycle:

• Confirm employee eligibility against the applicable wage ceiling

• Check the 30-day working requirement

• Apply the correct calculation ceiling

• Review set-on and set-off from earlier years

• Verify the applicable bonus percentage

• Identify any valid disqualification cases

• Include eligible resignations in the calculation

• Complete payment within the statutory timeline

• Maintain the required registers and return documentation

For legacy documentation requirements, you can also refer to the Form C download.

What is Productivity-Linked Bonus?

The statutory framework also recognises productivity-linked bonus arrangements in certain circumstances.

These arrangements allow employers and employees to link bonus payments with productivity or production measures, subject to the applicable legal conditions.

However, an organization should not use a productivity agreement to simply eliminate the statutory minimum bonus protection for eligible employees.

For most HR teams, productivity-linked arrangements are more complex than the standard annual bonus calculation. They should be supported by clear agreements, measurable productivity criteria, and a review of the applicable statutory provisions before implementation.

Wrapping it Up

Statutory bonus looks straightforward when reduced to one percentage, but the payroll process involves more than applying 8.33% or 20%.

HR and payroll teams need to verify eligibility, apply the correct wage ceiling, account for set-on and set-off where relevant, include eligible employees who resigned during the year, meet the payment deadline, and maintain the right compliance records.

The biggest FY 2026-27 change is the legal framework itself. Bonus is now governed under Chapter IV of the Code on Wages, 2019, rather than the standalone Payment of Bonus Act, 1965.

For teams still managing these calculations across spreadsheets, payroll registers, and separate compliance trackers, that transition is a good reason to review the entire bonus workflow.

Keka Payroll helps organizations manage payroll calculations, employee records, and statutory workflows from one system, making it easier to run recurring compensation and compliance processes accurately.

Simplify statutory bonus calculations with Keka Payroll

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Frequently Asked Questions (FAQs)

Q1. What is statutory bonus in salary?

1. Statutory bonus is a legally mandated payment for eligible employees in covered establishments. It generally ranges from 8.33% to 20% of the applicable wage base and is different from discretionary performance incentives.

Q2. How is the statutory bonus calculated?

1. Statutory bonus is calculated using the applicable Basic Salary and DA, subject to the statutory calculation ceiling. The familiar calculation framework uses a ₹7,000 ceiling or the applicable minimum wage, whichever is higher, with the bonus percentage ranging from 8.33% to 20%.

Q3. When is the statutory bonus paid?

1. Statutory bonus is generally payable within eight months of the close of the accounting year. For a financial year ending on 31 March, the standard deadline is generally 30 November.

Q4. Will I get a statutory bonus if I resign?

1. Yes, fully, as salary income under Section 17(1) of the Income Tax Act, with TDS deducted at the employee’s applicable slab rate. Yes, resignation does not automatically remove statutory bonus entitlement. An employee who has worked at least 30 days during the accounting year can generally receive a proportionate bonus for the period worked, subject to the applicable rules.

Q5. Is statutory bonus taxable?

1. Yes. Statutory bonus is generally taxable as salary income and forms part of the employee’s taxable income for the relevant year. TDS may therefore be adjusted based on the employee’s overall estimated tax liability.