Bonus

What is a Bonus?

A Bonus is a monetary reward given by an employer to employees, either as a statutory entitlement or a discretionary performance incentive. It serves as a financial recognition of an employee’s contribution to organizational success and helps enhance motivation, retention, and job satisfaction. Bonuses can be mandatory under law (like the Payment of Bonus Act, 1965) or voluntary, depending on company policy.

Key Features:

Types of Bonuses:

• Statutory Bonus: Mandated under the Payment of Bonus Act, 1965, applicable to employees earning up to ₹21,000/month and who have worked at least 30 days in the financial year.
• Performance/Annual Bonus: Based on individual or company performance.
• Festival Bonus: Given during festive seasons as goodwill.
• Joining/Retention Bonus: Paid for recruitment or retention purposes.
• Statutory Bonus Rate: Minimum 8.33% and maximum 20% of annual wages, subject to eligibility.
• Taxation: Fully taxable under “Income from Salary”, with TDS applicable as per slab rates.
• Payment Timeline: Statutory bonus must be disbursed within 8 months from the end of the accounting year.
• Compliance: Companies must maintain Form C and D registers under the Bonus Act.

Example

An employee with an annual salary of ₹3,00,000 becomes eligible for a 10% statutory bonus, resulting in a ₹30,000 payout, usually disbursed post financial year closure.

Why Bonus Matters?

It serves as a motivational and retention tool, aligning employee performance with business goals while fulfilling statutory obligations.