Question 1

What is the formula for calculating bonus in India?

Accepted Answer

Under the Payment of Bonus Act, 1965, statutory bonus = MIN(monthly salary, ₹7,000) x 12 months x bonus percentage. The percentage ranges from 8.33% (minimum) to 20% (maximum). For an employee earning ₹25,000/month, the calculation uses ₹7,000 as the base: ₹7,000 x 12 x 8.33% = ₹6,997 per year at minimum. Performance bonus has no formula prescribed by law — it is calculated as actual salary x bonus percentage, as per company policy.

Question 2

Who is eligible for statutory bonus in India?

Accepted Answer

All employees earning up to ₹21,000 per month (basic + DA) are eligible for statutory bonus if the establishment has 20 or more workers. The employee must have worked at least 30 days in the accounting year. Employees dismissed for fraud, violent behaviour, or theft are excluded. Apprentices under the Apprentices Act are also not eligible. The bonus must be paid within 8 months of the close of the accounting year.

Question 3

What is the difference between statutory bonus and performance bonus?

Accepted Answer

Statutory bonus is legally mandated under the Payment of Bonus Act for establishments with 20+ employees. It has a fixed calculation base (capped at ₹7,000), minimum rate (8.33%), and maximum rate (20%). Performance bonus is voluntary, decided by the employer based on individual or company performance. It has no salary cap or rate limit and is typically 10-30% of CTC in IT companies. Performance bonus is part of variable pay in the CTC structure.

Question 4

Is bonus taxable in India?

Accepted Answer

Yes, both statutory and performance bonus are fully taxable as salary income under the head "Income from Salary." They are subject to TDS at your applicable slab rate. Bonus is typically included in the month it is paid, which can push you into a higher tax bracket for that month. Some companies spread the TDS impact over multiple months. You can claim standard deduction of ₹50,000 on total salary income including bonus.

Question 5

What is the ₹7,000 salary ceiling for bonus?

Accepted Answer

The Payment of Bonus Act caps the calculation base at ₹7,000 per month. This means regardless of whether you earn ₹7,000 or ₹70,000, your statutory bonus is computed on ₹7,000. At the minimum rate of 8.33%, this gives a minimum annual bonus of ₹6,997. At the maximum 20% rate, the annual bonus is ₹16,800. The eligibility ceiling is ₹21,000/month, but the calculation ceiling remains ₹7,000 — a distinction that often confuses employees.

Question 6

When is bonus usually paid in India?

Accepted Answer

Statutory bonus must be paid within 8 months of the close of the accounting year (by November 30 for companies with a March 31 year-end). Most companies pay it during the Diwali/festive season (October-November). Performance bonus is typically paid after the annual appraisal cycle — April-June for most companies. Some companies pay performance bonus quarterly. The timing varies significantly between organizations; check your offer letter or HR policy.

Question 7

Can my employer refuse to pay bonus?

Accepted Answer

An employer cannot refuse to pay statutory bonus if the establishment falls under the Payment of Bonus Act (20+ employees, employee salary up to ₹21,000). Even if the company incurs losses, the minimum bonus of 8.33% must be paid. For performance bonus, however, the employer has full discretion — it can be reduced or withheld based on company or individual performance. If statutory bonus is denied, employees can file a complaint with the Labour Commissioner.

Bonus Calculator India — Statutory & Performance Bonus