As Diwali lights up homes across India, employees eagerly await the festive Diwali Bonus — a symbol of appreciation and prosperity. Beyond the joy of celebration, this annual gesture is closely tied to a statutory obligation under Indian labour law: the Payment of Bonus Act, 1965.
This article explores everything employers and employees should know about Diwali bonuses — from eligibility and calculations to compliance and legal returns — ensuring the celebration stays both joyful and lawful.
What Is a Diwali Bonus?
A Diwali Bonus is an additional payment made to employees during the festive season. While traditionally seen as a goodwill reward, in many organizations it also serves as the statutory bonus required under law.
Employers, especially in manufacturing and service sectors, often time their statutory bonus payments around Diwali — combining compliance with cultural goodwill.
Recent HR surveys indicate that more than 60% of Indian employees prefer monetary bonuses over gifts or vouchers, making the Diwali bonus both a motivator and a compliance necessity.
Legal Framework: The Payment of Bonus Act, 1965
The Payment of Bonus Act, 1965 mandates the payment of annual bonuses to eligible employees, ensuring equitable distribution of profits and motivating workforce productivity.
Applicability
- The Act applies to factories and establishments employing 20 or more employees on any day during an accounting year.
- State-specific only*: Certain smaller establishments (with 10 or more employees) may also be covered, It is depending on state-specific notifications.
Eligibility Criteria
Employees are entitled to receive a bonus if they:
- Have worked for at least 30 days in an accounting year.
- Earn a monthly salary or wage not exceeding ₹21,000.
- Have not been disqualified due to misconduct or fraud.
Bonus Calculation: Minimum and Maximum Limits
- Minimum Bonus: 8.33% of the employee’s annual salary or wages.
- Maximum Bonus: 20% of the employee’s annual salary or wages, depending on available surplus and profit.
- The calculation is based on the company’s gross profits, from which certain prior charges (like depreciation and taxes) are deducted to determine the “available surplus.”
Employers must calculate the allocable surplus accurately to determine how much bonus can be legally distributed.
Timeline for Payment
Employers must pay the statutory bonus within 8 months from the close of the accounting year — typically by 31st October if the financial year ends on 31st March.
If an employer cannot make the payment within this time due to genuine financial constraints, they may seek permission for an extension from the appropriate government authority.
Legal Compliance, Registers & Returns
Under the Payment of Bonus Act, 1965, compliance involves more than just paying the bonus. Employers must maintain proper records, registers, and submit statutory returns to labour authorities.
Mandatory Registers
Every employer covered under the Act must maintain the following registers:
- Form A – Computation of the allocable surplus.
- Form B – Set-on and set-off of allocable surplus.
- Form C – Details of bonus due, paid, and payable to each employee.
- Form D – Annual Return under the Payment of Bonus Act.
These registers serve as proof of compliance during inspections and audits.
Filing of Annual Return
Balance carried forward or set-on/set-off details.
Employers must file the Annual Return in Form D to the local Labour Commissioner or Inspector within 30 days after the payment of bonus is completed.
The return should include:
- Total number of employees,
- Total salary or wages paid,
- Amount of allocable surplus,
- Total bonus distributed, and
Record Retention
All records and registers must be preserved for at least eight years, as they can be inspected by labour authorities at any time.
Failure to maintain these records or file returns on time can lead to penalties, including fines and possible prosecution under the Act.
Diwali Bonus vs. Statutory Bonus
While many employers pay a Diwali bonus voluntarily, it often overlaps with the statutory bonus mandated by law. Here’s how they differ:
| Aspect | Diwali Bonus | Statutory Bonus |
|---|---|---|
| Nature | Voluntary / cultural | Mandatory under law |
| Timing | Usually before Diwali | Within 8 months of FY end |
| Amount | Discretionary | 8.33% – 20% of wages |
| Legal Obligation | None (unless declared) | Mandatory if Act applies |
| Tax Treatment | Part of salary income | Treated as salary under Income Tax Act |
To stay compliant, employers often combine both — disbursing the statutory bonus during Diwali season to meet both legal and cultural expectations.
Diwali Bonus Best Practices for 2025
As HR policies evolve, companies are adopting modern and transparent approaches to bonus payments. Key trends include:
- Advance Announcements – Declaring bonus policies early to ensure clarity and trust.
- Tiered Bonus Models – Combining minimum statutory bonuses with performance-linked incentives.
- Profit-Linked Disbursement – Tying bonus rates to departmental or overall profitability.
- Digital Payouts – Ensuring secure and traceable payments via payroll systems.
- Transparent Compliance – Maintaining detailed records and filing returns on time to avoid penalties.
- Employee Communication – Clearly explaining how bonuses are computed and what part is statutory.
Such practices not only ensure legal compliance but also strengthen employer branding and employee morale.
Responsibilities & Checklist for Employers
Before making the Diwali bonus announcement, employers should ensure:
- Applicability of the Payment of Bonus Act to their establishment.
- Proper calculation of allocable surplus and bonus percentages.
- Maintenance of Forms A to D and relevant registers.
- Timely payment and filing of Form D return with the Labour Department.
- Transparent communication with employees about the bonus structure.
Non-compliance with any of these can result in fines, legal action, and damage to goodwill.
Key Takeaways
- Diwali Bonus is both a festive reward and a legal responsibility.
- The Payment of Bonus Act, 1965 governs its applicability, calculation, and timelines.
- Employers must maintain proper records and returns to ensure full compliance.
- Timely and transparent bonus payment enhances both trust and productivity.
The Diwali bonus tradition beautifully merges festive generosity with legal responsibility. For employers, timely and compliant bonus payments reflect a commitment to fair labour practices. For employees, it symbolizes recognition and prosperity.
As we celebrate Diwali 2025, let’s ensure that every bonus paid shines as brightly in compliance as it does in celebration — fostering goodwill, trust, and growth for all.
