How Bonuses Are Taxed in India
Bonuses — performance, annual, or statutory — are treated as salary income and taxed at your applicable slab rate in the year received. No special exemption exists for bonuses (unlike gratuity or leave encashment).
Performance Bonus vs Statutory Bonus
Performance bonus: Discretionary, set by employer based on KPIs. Typically a % of CTC. Statutory bonus: Mandatory under Payment of Bonus Act 1965 for employees earning ≤₹21,000/month. Minimum 8.33%, maximum 20% of eligible wages (capped at ₹7,000/month).
Worked Example
Rahul earns ₹8,00,000 CTC, receives 15% bonus = ₹1,20,000 gross. At 20% tax bracket: tax = ₹1,20,000 × 20% × 1.04 (cess) = ₹24,960. Net in hand = ₹95,040. Many employees expect ₹1.2L but receive ₹95K — knowing this in advance prevents financial planning errors.
Is bonus taxable in India? +
Yes — bonuses are salary income, fully taxable at your slab rate in the year received. No specific exemption exists for performance bonuses.
Who is eligible for statutory bonus? +
Employees earning ≤₹21,000/month in companies with 20+ employees. Minimum 8.33% on wages up to ₹7,000/month is mandatory if the company has allocable surplus.
🔄 Last Updated: July 2026 · FY 2025-26