Diwali Bonus 2026: Payment of Bonus Act Rules Now Under Wage Code

Statutory bonus in India is at least 8.33% and at most 20% of an eligible employee’s wages for the year, and it must be paid within eight months of the close of the accounting year, which means by 30 November 2026 for a year that ended on 31 March 2026. One big change many employers have missed: the Payment of Bonus Act, 1965 was repealed on 21 November 2025, and bonus is now governed by the Code on Wages, 2019. This guide explains who is eligible, how to calculate the amount with worked examples, and what the August 2026 notifications mean for your Diwali payroll.

Updated October 2026. This is general information for small business owners, not legal or tax advice. Labour law is changing quickly as the new codes roll out, and states are issuing their own notifications. Always check the official source and speak to a qualified professional before finalising bonus payments.

Diwali Bonus 2026: The Quick Answer

Rule	Position in 2026
Governing law	Code on Wages, 2019, Chapter IV (Payment of Bonus Act, 1965 repealed from 21 November 2025)
Which establishments	Those employing 20 or more persons on any day in the accounting year
Eligible employees	Worked at least 30 days in the year; wages up to Rs 21,000 a month (central notification)
Calculation base	Rs 7,000 a month or the minimum wage, whichever is higher, for employees earning more than Rs 7,000
Minimum bonus	8.33% of wages earned, or Rs 100, whichever is higher
Maximum bonus	20% of wages earned
Payment deadline	Within 8 months of the end of the accounting year (30 November 2026 for FY 2025-26)
Payment mode	Credit to the employee’s bank account

What Changed: From the Bonus Act to the Wage Code

India’s four labour codes came into force on 21 November 2025. The Code on Wages, 2019 absorbed four older laws, including the Payment of Bonus Act, 1965. The bonus rules are now in sections 26 to 41 of the Code.

The money figures did not change for central-sphere establishments. On 25 August 2026 the Ministry of Labour and Employment issued two notifications, both deemed effective from 21 November 2025. S.O. 4710(E) in the Gazette of India sets the calculation ceiling: where an eligible employee’s wage exceeds Rs 7,000 a month, bonus is calculated as if the wage were Rs 7,000 a month or the minimum wage fixed by the Central Government, whichever is higher. S.O. 4711(E) sets eligibility at monthly wages not exceeding Rs 21,000. Law firm Khaitan & Co’s note on the bonus notifications summarises both.

The key differences at a glance

Point	Payment of Bonus Act, 1965	Code on Wages, 2019
Coverage	Every factory, plus other establishments with 20 or more persons	Establishments with 20 or more persons on any day of the year
Wage ceiling	Rs 21,000 written into the definition of “employee”	Set by notification of the appropriate government
Wages for bonus	Basic plus dearness allowance	The Code’s uniform definition of “wages”, with the 50% rule on allowances
Payment	Cash or cheque allowed	Credit to bank account
Disqualification	Fraud, violent behaviour, theft or sabotage	Same grounds, plus conviction for sexual harassment

Central sphere versus state sphere

The August 2026 notifications apply where the Central Government is the “appropriate government”: railways, mines, oilfields, major ports, air transport, telecom, banks, insurance companies, central public sector bodies and their contractors. Most private shops, factories, IT firms and service businesses fall under their state government. States are expected to issue their own notifications. Until your state does, ask your CA or labour consultant what figures to use. Many advisers suggest continuing with the familiar Rs 21,000 and Rs 7,000 thresholds, together with your state’s minimum wage, rather than skipping bonus.

Is Your Business Covered?

• Size: Chapter IV applies to an establishment that employed 20 or more persons on any day in the accounting year. Small factories with fewer than 20 people, which were covered under the old Act, are now outside it.
• Exclusions: Section 41 excludes some categories, such as government departments, LIC, the Reserve Bank of India and certain non-profit institutions.
• New businesses: For the first five accounting years after the first sale or service, bonus is payable only in years where the business makes a profit. Special set-on and set-off rules apply in years six and seven.

Which Employees Are Eligible?

1. Wage limit: Monthly wages up to Rs 21,000 under the central notification. An employee earning Rs 21,000 is eligible; one earning Rs 21,500 is not entitled to statutory bonus, though you can still pay a discretionary bonus.
2. 30 days of work: The employee must have worked at least 30 days in the accounting year.
3. Type of worker: Permanent, temporary, probationary and contract staff can all qualify if they meet the wage and days tests. Contract workers’ bonus is usually paid by the contractor, and the principal employer should check it has been paid.
4. Not disqualified: Employees dismissed for fraud, violent or riotous behaviour on the premises, theft, misappropriation or sabotage, or conviction for sexual harassment can lose bonus.

How to Calculate Statutory Bonus

Follow these steps for each eligible employee.

1. Find the monthly wage under the Code. “Wages” broadly means basic pay, dearness allowance and retaining allowance. Allowances such as HRA and conveyance are excluded, but if the excluded parts are more than half of total pay, the excess is added back to wages.
2. Check eligibility. Wage up to Rs 21,000 a month and at least 30 days worked.
3. Fix the calculation base. If the wage is above Rs 7,000, use Rs 7,000 or the applicable minimum wage for that employee’s category, whichever is higher.
4. Multiply by months worked to get the wages for bonus for the year.
5. Apply the percentage. At least 8.33% (or Rs 100 if higher), and up to 20% depending on your allocable surplus.
6. Deduct any advance or customary festival bonus already paid for the same year, which section 37 allows.

The allocable surplus in one paragraph

Whether you pay more than 8.33% depends on profit. The Code starts with gross profit, subtracts allowed deductions to get the “available surplus”, and takes 67% of it (60% for banks) as the “allocable surplus”. If that is more than the minimum bonus, you pay more, up to the 20% ceiling. Extra surplus above 20%, or a shortfall below 8.33%, is carried forward for up to four years (set-on and set-off). Your accountant should run this from your audited figures.

Worked Examples

These examples are illustrative. They assume a minimum wage of Rs 12,000 a month for the employee’s category. Your real minimum wage depends on your state, zone and skill category, so replace it with the current notified rate.

Employee	Monthly wage	Months worked	Base used	Bonus at 8.33%	Bonus at 20%
A, store staff	Rs 15,000	12	Rs 12,000 (minimum wage, higher than Rs 7,000)	Rs 11,995	Rs 28,800
B, accountant	Rs 21,000	12	Rs 12,000	Rs 11,995	Rs 28,800
C, supervisor	Rs 21,500	12	Not eligible	Nil (statutory)	Nil (statutory)
D, joined in December	Rs 15,000	4	Rs 12,000	Rs 3,998	Rs 9,600

How A’s figure works: Rs 12,000 x 12 = Rs 1,44,000. 8.33% of that is Rs 11,995 (rounded). Notice that A and B get the same statutory bonus, because both are calculated on the same capped base. That is how the ceiling is designed.

For a central-sphere employer, the base is Rs 7,000 or the minimum wage fixed by the Central Government, whichever is higher. If the base were exactly Rs 7,000, the minimum annual bonus would be Rs 6,997 and the maximum Rs 16,800.

The Deadline and the Diwali Question

Statutory bonus is due within eight months of the end of the accounting year. For most businesses, that year ends on 31 March, so the bonus for FY 2025-26 is due by 30 November 2026. Extensions are possible only in limited cases.

The law does not require you to pay on Diwali, but most Indian businesses do, because employees spend heavily during the festival. With Lakshmi Puja on Sunday, 8 November 2026, crediting bonus by the first week of November is the practical target.

The transition year

FY 2025-26 straddles the change: 1 April to 20 November 2025 fell under the old Act and 21 November 2025 onwards under the Code, with the August notifications applied retrospectively. Advisers differ on how to handle the split year, especially where the Code’s wider definition of wages raises the bonus base. Settle the approach with your CA and document it.

Diwali Bonus, Ex-Gratia and Performance Bonus: Know the Difference

Type	Is it compulsory?	Who gets it	Notes
Statutory bonus	Yes, for covered establishments	Eligible employees up to the wage limit	8.33% to 20%, deadline 8 months after year end
Customary or festival bonus	No, unless it has become a condition of service	Usually all staff	Can be adjusted against statutory bonus for the same year
Ex-gratia	No	Often staff above the wage limit	Goodwill payment, fully taxable
Performance or productivity bonus	No, unless agreed	Based on targets	Productivity-linked bonus under the Code is also capped at 20% overall with statutory bonus

Tax and Payroll Points

• Bonus is salary income for the employee and is taxed in the year it is received. Deduct TDS through payroll.
• Statutory bonus is excluded from the Code’s definition of wages, so it does not itself raise PF or gratuity wages. Check how your payroll software handles this.
• Pay by bank transfer and keep the transfer reference with your bonus register.
• Show it clearly on the November payslip as “Statutory bonus FY 2025-26” so employees and inspectors can see what was paid.

Employer Checklist for Diwali Bonus 2026

• Confirm whether the Centre or your state is the appropriate government for your establishment.
• Check your state’s latest bonus notification and current minimum wage rates.
• List all employees, including contract staff, with monthly wages and days worked in FY 2025-26.
• Recompute wages under the Code’s definition, including the 50% rule.
• Calculate allocable surplus from audited accounts with your CA.
• Deduct any advance or festival bonus already paid for the year.
• Credit bonus to bank accounts well before 30 November 2026, ideally before Diwali.
• Keep registers and records as required, and file any returns your state requires.

Frequently Asked Questions

Is the Payment of Bonus Act still applicable in 2026?

No. It was repealed when the Code on Wages, 2019 came into force on 21 November 2025. Bonus is now governed by sections 26 to 41 of the Code, though the basic structure (8.33% minimum, 20% maximum) is the same.

What is the minimum Diwali bonus for employees?

The statutory minimum is 8.33% of wages earned in the year, or Rs 100, whichever is higher. It is payable even if the business made a loss, for covered establishments.

What is the salary limit for bonus eligibility?

Under the central notification S.O. 4711(E) of 25 August 2026, employees with monthly wages up to Rs 21,000 are eligible. State-sphere employers should check their own state’s notification.

What is the last date to pay statutory bonus for FY 2025-26?

Within eight months of the end of the accounting year. For a year ending 31 March 2026, that is 30 November 2026.

Is bonus compulsory for a business with 15 employees?

Statutory bonus under the Code applies to establishments with 20 or more persons on any day of the year. Smaller businesses are not covered by Chapter IV, but many still pay a festival bonus as goodwill.

Can I pay Diwali bonus in cash?

Statutory bonus under the Code should be credited to the employee’s bank account. Paying by bank transfer also gives you proof of payment.

Pay on Time, Keep the Records

The new Wage Code did not change the heart of the bonus rules, but it did change the law you cite, the definition of wages and how you must pay. Work out who your appropriate government is, check the latest notification and minimum wage, run the numbers with your CA, and credit the money before Diwali. A bonus that arrives on time, with a clear payslip line, does more for morale than a larger one that comes late.