Diwali Bonus for Employees in India: Statutory Rules, Eligibility and Calculation

Is Diwali bonus mandatory in India? Not automatically. Statutory bonus is an annual legal entitlement for eligible employees of covered establishments. It is not a universal entitlement to an additional month’s salary specifically on Diwali. A separate contractual or established customary festival bonus may, however, create an enforceable obligation. The nature of the payment matters, not simply its name. See the legal references below.

For an employer preparing Diwali bonus for employees, the important questions are: what statutory bonus is payable for the accounting year, and has the organisation also committed to a separate festive benefit?

Diwali bonus and statutory bonus: understanding the difference

The description “Diwali bonus” does not, by itself, determine the legal treatment of a payment. A festival payment could be statutory bonus paid around Diwali, an advance against annual bonus, a customary benefit, or a genuinely voluntary gift. The underlying entitlement and payment records matter more than the label.

The Supreme Court’s decision in Hukam Chand Jute Mills Ltd. v. Second Industrial Tribunal, West Bengal recognised the distinction between customary and statutory bonus under the former legislation. Employers should therefore not assume that every festive payment is optional merely because it is described as ex gratia.

Payment of Bonus Act and the Code on Wages: the current position

The Payment of Bonus Act, 1965 remains an important reference for historical bonus obligations. However, a current explanation must also address the Code on Wages, 2019.

The Code’s bonus provisions came into force on 21 November 2025, through notification S.O. 5322(E). Section 69 repeals the earlier wage enactments, including the Payment of Bonus Act, subject to savings provisions. Earlier obligations should not simply be treated as extinguished.

Two Central Government notifications dated 25 August 2026, deemed effective from 21 November 2025, are particularly relevant:

These notifications address different questions: who qualifies and what wage base is used for calculation. They should not be confused.

For related background, read our guide to payment of bonus under the Code on Wages. Use the current official notifications linked above when reviewing the relevant period.

Who is eligible for statutory bonus?

The Code’s bonus chapter generally applies to establishments employing 20 or more persons on any day during the accounting year, subject to its exclusions and special provisions. Coverage should be checked separately from an individual employee’s eligibility. See Section 41 of the Code and our labour law and establishment compliance services.

For an employee, the principal checks include working for at least 30 days in the accounting year and falling within the applicable notified wage ceiling. Completing a full year of service is not the general eligibility requirement. The Ministry’s Code on Wages FAQs also explain bonus eligibility.

Under the Central notification, the eligibility ceiling is wages not exceeding ₹21,000 per month. This is a statutory wage test, not a take-home-pay or CTC test.

As a practical control, HR should review the complete employee population rather than simply carry forward last year’s bonus list. New joiners, employees who left during the year, salary revisions and changes in wage structure all deserve attention.

Is bonus calculated on basic salary, gross salary or CTC?

Do not automatically use any one of these payroll labels. Start with the statutory definition of wages applicable to the relevant period.

Section 2(y) of the Code includes basic pay, dearness allowance and retaining allowance, while also providing exclusions and an add-back mechanism where specified excluded components exceed 50% of the relevant remuneration. Consequently, “bonus wages always mean only basic plus DA” is not a safe universal assumption.

The Ministry’s March 2026 Labour Codes FAQs confirm that the revised wage definition applies from 21 November 2025. This makes the transition particularly relevant for FY 2025–26, which straddles that date. Employers should reconcile the applicable definitions and saved obligations rather than assume that a new wage formula automatically applies retrospectively to the whole year.

A useful working-paper approach is to show three separate figures: payroll remuneration, legally determined wages for eligibility, and the bonus-calculation wage base.

What is the difference between the ₹21,000 ceiling and ₹7,000 calculation benchmark?

₹21,000 is the Central Government’s notified eligibility ceiling. It does not mean every eligible employee receives ₹21,000 as bonus, or that bonus must always be calculated on ₹21,000.

₹7,000 is a calculation benchmark, not a flat annual bonus amount. Under the Central calculation notification, an eligible employee whose wages exceed ₹7,000 is covered by the prescribed ₹7,000-or-Central-minimum-wage rule. The minimum wage can therefore produce a higher calculation base.

Before finalising the employee-wise sheet, review the applicable minimum wage notifications and the relevant employee classification. Using one unverified rate for every branch or skill category is an avoidable payroll risk.

What are the minimum and maximum statutory bonus rates?

The Code specifies a minimum of eight and one-third per cent — 8⅓% — or ₹100, whichever is higher, subject to the relevant proportionate and special provisions. The statutory maximum is 20%. See Sections 26 to 28.

The applicable rate is not simply a discretionary choice anywhere between the minimum and maximum. Finance must examine the statutory surplus calculations and the set-on and set-off mechanism, which carries forward relevant surplus or deficiency under Section 36.

Likewise, an ordinary business loss does not automatically remove the minimum-bonus obligation. However, special provisions, including those for newly established businesses, require separate examination.

Statutory bonus calculation: a practical example

The basic working formula is:

Consider this hypothetical illustration for a complete accounting year governed by the Code provisions. Assume the employer has already verified coverage, eligibility and the applicable notification, and that the figures remain unchanged throughout the year.

These are arithmetic illustrations, not a declaration that ₹12,000 is the applicable minimum wage for any particular State, industry or employee category. The higher rates shown are alternatives, not amounts automatically payable to every eligible employee.

For six complete eligible months on the same assumed basis, the minimum-rate illustration is ₹12,000 × 6 × 8⅓% = ₹6,000. Actual payroll workings should account for relevant changes in wages, applicable rates and payable periods.

Rounding note: The Code uses eight and one-third per cent. Preserve sufficient calculation precision rather than truncating the rate in a way that creates a payment shortfall.

Can Diwali bonus be adjusted against statutory bonus?

Yes, where the legal conditions are satisfied. Section 37 of the Code permits adjustment of specified puja, customary or interim bonus payments against the statutory bonus payable for the same accounting year. The former Act contained a corresponding provision in Section 17.

For example, suppose the final annual entitlement is ₹12,000 and a legally adjustable bonus advance of ₹5,000 has already been paid for that same year. The balance is ₹12,000 − ₹5,000 = ₹7,000.

As a practical control, record the accounting year and nature of the advance when paying it. Do not automatically deduct the value of sweets, gift hampers, vouchers or unrelated incentives from statutory bonus. A benefit promised in addition to statutory bonus also needs separate review before adjustment.

What is the statutory bonus payment deadline?

Under Section 39 of the Code, bonus is ordinarily to be credited to the employee’s bank account within eight months after the close of the accounting year, subject to the statutory extension and dispute provisions.

Diwali itself is not the universal statutory due date. An earlier festival-linked obligation may arise from a settlement, contractual commitment or established custom. Employers should check both the statutory deadline and any separate undertaking to employees.

A practical Diwali bonus checklist for employers

Before authorising payment, bring together three sets of working papers:

• Legal and employee checks: Establishment coverage, appropriate government, applicable notifications, wage eligibility, service period and relevant employment commitments.
• Calculation checks: Employee-wise calculation wages, minimum-wage references, the finance-approved statutory rate, surplus workings and reconciliation of earlier bonus payments.
• Payment and communication checks: Bank-payment evidence, the correct accounting-year reference, a clear distinction between statutory bonus and additional benefits, and a documented balance payable.

As an internal control, payroll should not be asked to select the bonus percentage without the necessary finance workings. Equally, finance should not approve only a total budget without checking the employee-level calculation assumptions. Our payroll compliance services support employers with processing and independent statutory payroll review.

A clear payment communication might separately identify annual statutory bonus, advance already paid, balance now payable and additional festive benefit. This is preferable to describing every component simply as “Diwali bonus”.

Frequently asked questions

Is Diwali bonus compulsory for every private company?

No. Statutory liability depends on establishment coverage and employee eligibility. A separate festive entitlement may arise through contract or custom; there is no universal rule requiring every private company to pay an additional month’s salary on Diwali.

Can an employee with gross salary above ₹21,000 still qualify?

Possibly. Gross salary alone does not resolve eligibility. The employer must determine statutory wages correctly and compare them with the applicable notified ceiling. The wage-definition exercise must include the relevant exclusions and add-back rule.

Is an employee who resigns before Diwali automatically ineligible?

No. Resignation before the festival does not by itself cancel an otherwise accrued statutory entitlement. Eligibility, the service period and any legally applicable disqualification must be examined under the relevant provisions.

Is the minimum statutory bonus always one month’s gross salary?

No. The calculation uses legally determined bonus-calculation wages, not automatically gross salary. In the full-year illustration above, the minimum equals one month of the assumed calculation base, not one month of the employee’s ₹18,000 wages.

Should the employer pay 20% whenever the business makes a profit?

Not automatically. The amount depends on the statutory surplus and adjustment calculations, rather than profit alone or an informal management decision.

This article provides general information, not a substitute for establishment-specific legal advice. Verify the relevant accounting period, jurisdiction, notifications and contractual obligations before processing payment. The original 2024 article has been substantially updated on 5 October 2026.