Bonus Calculator: Complete Payment of Bonus Act Guide
Every year during the festive season of Diwali, millions of workers across factories, commercial establishments, and corporate offices in India eagerly await their Annual Bonus.
Governed by the Payment of Bonus Act, 1965, statutory bonus is mandatory for establishments employing 20 or more persons. Employees earning up to ₹21,000 Basic Pay + DA per month are statutorily eligible. Under Section 12 of the Act, bonus is calculated on a capped wage ceiling of ₹7,000 per month (or minimum wage, whichever is higher), ranging between a statutory minimum of 8.33% and a statutory maximum of 20.00%. Our free online Bonus Calculator computes your minimum statutory bonus, maximum statutory bonus, ex-gratia performance bonus, and total annual earnings.
Payment of Bonus Act 1965 Statutory Limits Table
| Bonus Act Provision | Statutory Limit / Ceiling | Calculation & Monthly Formula |
|---|---|---|
| Salary Eligibility Threshold | Monthly Basic Pay + DA <= ₹21,000 | Employees earning up to ₹21,000/mo qualify for statutory bonus. |
| Statutory Calculation Ceiling (Sec 12) | ₹7,000 / month (or Minimum Wage) | Bonus is calculated on max ₹7,000/mo basic even if salary is ₹18,000/mo. |
| Statutory Minimum Bonus Rate | 8.33% of Annual Eligible Wages | Equal to ~1 month basic (Min ₹7,000/yr for 12 months service). |
| Statutory Maximum Bonus Rate | 20.00% of Annual Eligible Wages | Max ₹16,800/yr (₹7,000 * 20% * 12 months). |
Monthly Basic Pay vs Statutory Bonus Payout Table
| Monthly Basic Salary + DA | Calculated Wage Ceiling (Sec 12) | Minimum Bonus (8.33%) | Maximum Bonus (20.00%) |
|---|---|---|---|
| ₹6,000 / month | ₹6,000 / month | ₹5,998 / year | ₹14,400 / year |
| ₹18,000 / month | ₹7,000 / month (Capped) | ₹7,000 / year | ₹16,800 / year |
| ₹21,000 / month | ₹7,000 / month (Capped) | ₹7,000 / year | ₹16,800 / year |
| Above ₹21,000 / month | Ex-Gratia Framework | N/A (Corporate Discretionary) | Ex-Gratia Performance Bonus |
Worked Financial Case Study: ₹18,000 Basic Pay Diwali Bonus
Consider a factory worker in Gujarat earning ₹18,000 monthly Basic Pay + DA who worked 12 full months and is awarded a 20.00% maximum statutory Diwali bonus:
| Bonus Calculation Parameter | Financial Valuation Result |
|---|---|
| Monthly Basic Salary + DA | ₹18,000 / month |
| Section 12 Calculation Wage Ceiling | Capped at ₹7,000 / month |
| Annual Eligible Calculation Wages (12 Months) | 12 * ₹7,000 = ₹84,000 / year |
| Statutory Bonus Percentage Awarded | 20.00% (Maximum Statutory Rate) |
| TOTAL ANNUAL DIWALI BONUS PAYOUT | ₹16,800 PAYOUT! (20% of ₹84,000) |
| Total Annual Compensation (Basic + Bonus) | ₹2,16,000 + ₹16,800 = ₹2,32,800 / year |
Key Rules of the Payment of Bonus Act, 1965
- 30 Days Service Rule: An employee must work at least 30 working days in the accounting year to qualify for bonus.
- 8 Months Payment Timeline: Employers must pay the annual bonus within 8 months from the close of the accounting year (usually before Diwali).
- Set-On and Set-Off Rules: Allocable surplus from profitable years is set-on to pay 8.33% minimum bonus during lean years.
- Taxability: Bonus and ex-gratia payments are 100% taxable under Salaries income.
How to Use the Bonus Calculator
- Enter Basic Pay: Input monthly Basic Pay + DA.
- Select Months Worked: Choose service duration (1 to 12 months).
- Select Bonus Type: Choose Statutory Bonus (Sec 12) or Corporate Ex-Gratia.
- Select Bonus Rate: Adjust rate slider between 8.33% and 20.00%.
- Review Bonus Payout: View calculated bonus payout, minimum/maximum limits, and total annual earnings.
Frequently Asked Questions (FAQs)
What is statutory Annual Bonus under the Payment of Bonus Act 1965?
The Payment of Bonus Act 1965 mandates that covered commercial establishments and factories pay an annual bonus out of profits to eligible employees who earn up to ₹21,000 Basic Pay + DA per month.
What is the minimum statutory bonus percentage in India?
The minimum statutory bonus is 8.33% of the employee's eligible annual wages (or ₹100, whichever is higher), which equals approximately 1 month's basic salary capped at ₹7,000 per month.
What is the maximum statutory bonus percentage allowed under law?
The maximum statutory bonus payable under the Payment of Bonus Act 1965 is 20.00% of the employee's eligible annual wages.
What is the ₹7,000 calculation wage ceiling under Section 12?
Under Section 12 of the Bonus Act, even if an employee earns up to ₹21,000 Basic Pay per month, the bonus payout is calculated assuming a maximum wage ceiling of ₹7,000 per month (or minimum wage, whichever is higher).
What is an Ex-Gratia / Diwali Bonus?
Ex-gratia bonus is a voluntary performance-linked or festive reward paid by companies to employees earning above the ₹21,000 statutory eligibility threshold or as an additional Diwali reward.
Is Annual Bonus taxable in India?
Yes, annual bonuses and ex-gratia payments received by an employee are 100% taxable under the head "Salaries" and subject to Income Tax TDS.