Statutory Bonus Calculation 2026: Formula, Ceilings and Worked Examples

Quick answer: If an employee earns up to ₹21,000 a month and has worked at least 30 days in the accounting year, they are entitled to statutory bonus. It is calculated on wages of ₹7,000 a month or the applicable minimum wage, whichever is higher, at a rate between 8.33% and 20%, and it must be paid within eight months of the year closing, which for most businesses means by 30 November. That is why it arrives around Diwali.

You can check any employee in seconds with the free bonus calculator.

What changed in 2026

Bonus used to be governed by the Payment of Bonus Act, 1965. Since the four labour codes came into force on 21 November 2025, the rules sit in the Code on Wages, 2019. The code left two numbers to be notified, and the Ministry of Labour and Employment notified both on 25 August 2026, effective from 21 November 2025:

The accounting year 2025-26 straddles the switch on 21 November 2025. If your year runs April to March, confirm with your payroll adviser how your organisation applies the transition for that year.

The formula

Bonus = wages used for bonus × months worked × bonus rate

• Wages used for bonus = the lower of the employee's actual wages and the calculation ceiling
• Calculation ceiling = ₹7,000 or the applicable minimum wage, whichever is higher
• Bonus rate = at least 8.33%, at most 20%, depending on the allocable surplus

"Wages" here follows the Code on Wages definition. Under the codes, if excluded allowances make up more than half of total pay, the excess is added back to wages. The 50% wage rule explained in our salary guide covers how that works.

Three worked examples

1. Earns ₹15,000, minimum wage ₹11,000, worked the full year

• Ceiling: higher of ₹7,000 and ₹11,000 = ₹11,000
• Wages used: lower of ₹15,000 and ₹11,000 = ₹11,000
• Minimum bonus: ₹11,000 × 12 × 8.33% = ₹10,996
• Maximum bonus: ₹11,000 × 12 × 20% = ₹26,400

2. Earns ₹9,500, minimum wage ₹9,000, joined in July (9 months)

• Ceiling: ₹9,000
• Wages used: ₹9,000
• Minimum bonus: ₹9,000 × 9 × 8.33% = ₹6,747

3. Earns ₹24,000 a month

• Above ₹21,000, so not eligible for statutory bonus
• Any Diwali bonus is ex-gratia and follows your company policy

8.33% or 20%: what decides the rate

The minimum 8.33% is payable whether or not the business made a profit, except in the first years of a newly set up establishment under the conditions the code lays down. Above that, the rate depends on the allocable surplus: a share of the year's available surplus, worked out from the profit and loss account after prescribed deductions. If the allocable surplus is more than the minimum bonus, the employer pays more, up to 20%. Any surplus above the 20% cap, or shortfall below 8.33%, is carried forward to later years under the set-on and set-off rules.

If you do not calculate allocable surplus, you are effectively paying the minimum. That is legal, but make sure it is a decision, not an accident.

Who is not covered

• Employees earning more than ₹21,000 a month
• Employees who worked fewer than 30 days in the year
• Employees dismissed for fraud, violent behaviour, theft or sabotage, who can be disqualified
• Establishments outside the scope of the bonus provisions, which your adviser can confirm for your business

Is Diwali bonus taxable?

Yes. Statutory bonus and ex-gratia Diwali bonus are both salary income, taxed at the employee's slab rate. The employer includes it in the TDS calculation for the month it is paid, so a large bonus can push up TDS that month. It should also appear as a separate line on the salary slip.

A gift in kind, such as sweets or a hamper, is treated differently from cash, and small-value gifts can be tax-free for the employee within the limits in the income tax rules. Cash, gift cards and vouchers that work like cash are generally taxable.

A checklist before Diwali payouts

1. List every employee whose wages were ₹21,000 or less at any point in the year
2. Check days worked; anyone under 30 days is out
3. Find the minimum wage for each employee's state, industry and skill category, since it sets the ceiling
4. Decide the rate: 8.33% minimum, or higher based on allocable surplus
5. Run the numbers in the bonus calculator and spot-check a few by hand
6. Add bonus to the payroll run so TDS and the payslip are right
7. Pay by 30 November, and keep the working on file for inspections

Doing it in payroll, not a spreadsheet

Bonus goes wrong when wages, attendance and payroll live in three different files. MizUp BMS keeps attendance, leave and payroll together, so days worked are already counted, wages come from the salary structure and the bonus lands on the payslip with the right TDS. See the rest of our free HR tools, including the salary calculator and the gratuity calculator.

Frequently asked questions