[Analysis] Bonus Under the Code on Wages 2019 – Applicability | Allocable Surplus | Set-on and Set-off

Bonus is governed by Chapter IV of the Code on Wages, 2019, sections 26 to 41, replacing the Payment of Bonus Act, 1965 from 21st November 2025. Chapter IV applies to an establishment employing twenty or more persons on any day in an accounting year; the 1965 Act applied at ten. An employee who has worked thirty days is entitled to a minimum bonus of 8.33% of wages earned or Rs. 100, whichever is higher, payable whether or not there is an allocable surplus, and rising with wages to a maximum of 20%. Allocable surplus is 60% of the available surplus for a banking company, 67% for any other establishment.

Table of Contents

1. What replaced the Payment of Bonus Act, 1965?
2. Which establishments does Chapter IV apply to?
3. Who is eligible, and is the wage ceiling a bar?
4. Has the wage ceiling been notified?
5. What is allocable surplus?
6. How is bonus computed where wages exceed the ceiling?
7. Minimum, maximum, and bonus linked to productivity
8. Set-on and set-off: the four-year clock
9. The first seven years of a new establishment
10. The thirty-day test, and the trap in section 28
11. Who is disqualified from bonus?
12. When and how must bonus be paid?
13. Who falls outside Chapter IV altogether?
14. Quick answers

1. What replaced the Payment of Bonus Act, 1965?

Chapter IV of the Code on Wages, 2019 — sections 26 to 41. The Payment of Bonus Act, 1965 was repealed by section 69(1) with effect from 21st November 2025, and every provision of Chapter IV came into force on the same date.

Within the bonus machinery the transposition is close to one-for-one, with one large consolidation. Six provisions of the 1965 Act were folded into a single section:

Payment of Bonus Act, 1965	Code on Wages, 2019
Section 8 — eligibility for bonus Section 10 — payment of minimum bonus Section 11 — payment of maximum bonus Section 12 — calculation of bonus with respect to certain employees Section 16 — special provisions with respect to certain establishments Section 31A — bonus linked with production or productivity	Section 26 — eligibility for bonus, etc.
Section 3	Section 30 — establishments to include departments, undertakings and branches
Section 4	Section 32 — computation of gross profit
Section 5	Section 33 — computation of available surplus
Section 6	Section 34 — sums deductible from gross profit
Section 7	Section 35 — calculation of direct tax payable by employer
Section 9	Section 29 — disqualification for bonus
Section 13	Section 27 — proportionate reduction in bonus
Section 14	Section 28 — computation of number of working days
Section 15	Section 36 — set on and set off of allocable surplus
Section 17	Section 37 — adjustment of customary or interim bonus
Section 18	Section 38 — deduction of certain amounts from bonus payable
Section 19	Section 39 — time limit for payment of bonus
Section 20	Section 40 — application to establishments in public sector
Section 24	Section 31 — payment of bonus out of allocable surplus
Section 32	Section 41 — non-applicability of this Chapter

Section 26 now carries six predecessor provisions across nine sub-sections and two Explanations. Anyone accustomed to citing section 10 for minimum bonus and section 11 for maximum bonus is now citing section 26(1) and section 26(3) of the same section.

One caution about that table, because it is the answer to “what replaced the 1965 Act” only for the bonus computation itself. Ten sections of the 1965 Act have counterparts outside Chapter IV. Recovery of bonus due (section 21) is now section 45, claims under the Code; reference of disputes (section 22) is section 46; the presumption about the accuracy of a balance sheet (section 23) is section 47; audit of accounts (section 25) is section 48; maintenance of registers and records (section 26) is section 50; inspectors (section 27) is section 51, appointment of Inspectors-cum-Facilitators; penalty (section 28) is section 54; offences by companies (section 29) is section 55; cognizance (section 30) is section 52; and protection of action taken in good faith (section 31) is section 58. A compliance map built from Chapter IV alone will miss the claims, records, inspection and penalty machinery entirely.

2. Which establishments does Chapter IV apply to?

This is the threshold question and it is the one most often skipped, because in the 1965 Act it sat in section 1 and in the Code it sits at the far end of the chapter.

Section 41(2) provides that, subject to the exclusions in section 41(1) and notwithstanding anything else in Chapter IV, the provisions of the Chapter shall apply to such establishment in which twenty or more persons are employed or were employed on any day during an accounting year.

So the bonus chapter reaches an establishment at twenty employees. The Payment of Bonus Act, 1965 reached factories and establishments at ten. The commentary makes the contrast expressly at Para 41.1, and draws out the consequence at Para 41.2: the provisions relating to bonus under Chapter IV do not apply to an establishment where fewer than twenty persons are employed.

Two features of the drafting matter in practice.

“On any day during an accounting year.” The test is not headcount on the last day of the year, nor an average. One day at twenty brings the establishment within the Chapter for that accounting year. A seasonal peak counts.

“Twenty or more persons”, not twenty or more employees. The sub-section says persons employed, which is a wider expression than the defined term “employee” used elsewhere in the Chapter.

For an establishment sitting between ten and nineteen employees, this is the single largest change Chapter IV makes. It was covered by the 1965 Act and it is not covered by Chapter IV of the Code — though every other Chapter of the Code, including minimum wages and payment of wages, continues to apply to it.

3. Who is eligible, and is the wage ceiling a bar?

Section 26(1) provides that there shall be paid to every employee drawing wages not exceeding such amount per month as the appropriate Government determines by notification, who has put in at least thirty days’ work in an accounting year, an annual minimum bonus of 8.33% of the wages earned or Rs. 100, whichever is higher — and that minimum is payable whether or not the employer has any allocable surplus during the previous accounting year. Minimum bonus is not a share of profit. It is a charge that falls due in a loss-making year as surely as in a profitable one.

Now the part that has changed, and that a good deal of secondary writing still gets wrong.

Under the 1965 Act the wage ceiling was an eligibility bar, and it was a bar because of where it sat. Section 2(13) defined “employee” as a person “employed on a salary or wage not exceeding twenty-one thousand rupees per mensem“. A person above that figure was not an employee for the purposes of the Act at all, and so had no entitlement to bonus under it.

Section 2(k) of the Code defines “employee” in almost identical terms — and with no wage ceiling in it. The two definitions printed side by side in the commentary differ in precisely that respect. The ceiling has moved out of the definition and into section 26.

And section 26(2) then tells you what it does there. Where the wages of an employee exceed the notified amount, the bonus payable to that employee under sub-sections (1) and (3) “shall be calculated as if his wage were” the notified amount or the minimum wage fixed by the appropriate Government, whichever is higher. The sub-section assumes such an employee is entitled to bonus, and prescribes the figure the percentage runs on.

The Section Notes to section 26 in the commentary put it in four words: where an employee draws wages exceeding the threshold, “Employee will not be deprived of bonus” — his bonus is simply computed on the notified amount or the minimum wage, whichever is higher.

On that reading the wage ceiling under the Code is a computation cap, not an eligibility bar. The only true eligibility condition in section 26(1) is the thirty days. That is a substantive change from the 1965 Act, and for an establishment with senior staff it is the difference between no liability and a liability computed on a notional wage.

4. Has the wage ceiling been notified?

Not as at the date to which the standard commentary states the law.

Section 26(1) leaves the amount to be “determined by notification, by the Appropriate Government”. The commentary records at Para 26.13 that the maximum salary limit is to be prescribed by notification “which has not been prescribed so far”. The law is stated in that volume as on 20th July 2026, and Appendix 3 to it reproduces twelve notifications under the Code, none of them under section 26(1).

Two points follow, and one caution.

Do not assume Rs. 21,000. That figure was in the definition of “employee” in the repealed Act, and it is not reproduced anywhere in the Code. Whether it survives at all is a question about the reach of the savings clause: section 69(2) deems anything done under the repealed enactments — including any notification, nomination, appointment, order or direction — and also “any amount of wages provided in any provision of such enactments for any purpose”, to have been done or provided under the corresponding provisions of the Code, so far as not contrary to the Code and until repealed or superseded. Whether a wage ceiling embedded in a definition of “employee” is “an amount of wages provided … for any purpose” within that limb has not, so far as the reported decisions go, been tested. The prudent course is to treat the ceiling as unfixed and check the notifications rather than carry the old number forward.

The ceiling is now an appropriate Government matter. Section 26(1) says “the Appropriate Government”, not the Central Government. So the threshold can in principle differ between the central sphere and a State, and between one State and another. That was structurally impossible while the figure sat in the definition of “employee” in a central Act. For a multi-State employer it is a compliance variable that did not previously exist.

Check the current position on Taxmann.com | Research, where notifications under the Code are carried as they issue, before advising on either the ceiling or the notional wage under section 26(2).

5. What is allocable surplus?

Allocable surplus is the amount out of which bonus above the minimum is paid. Section 31(1) fixes it as a percentage of the available surplus:

• 60% of the available surplus, in the case of a banking company; and
• 67% of the available surplus, in the case of any other establishment.

The available surplus is computed under section 33: the gross profits for the accounting year, less the sums referred to in section 34. For accounting years after the commencement of the Code, the proviso to section 33 adds a second limb — the difference between the direct tax on an amount equal to the previous year’s gross profits and the direct tax on that amount after deducting the bonus paid or payable for that year.

Working outward from gross profit, the computation runs:

Step	Provision	What it produces
1. Gross profit	Section 32; Rules 24 and 25; Appendices B and C	The starting figure, computed by one method for a banking company and another for every other employer
2. Direct tax	Section 35	The notional tax figure the computation runs on
3. Prior charges	Section 34; Rule 26; Appendix D	Depreciation, the direct tax at step 2, and the further prescribed sums
4. Available surplus	Section 33	Gross profit less the section 34 sums, plus the proviso’s tax adjustment
5. Allocable surplus	Section 31(1)	60% or 67% of the available surplus
6. Carry-forward	Sections 26(4) and 36	The set-on or set-off from earlier years brought into account

One structural point that a reader coming from the 1965 Act will feel before identifying. The Code does not define “allocable surplus” at all. Nor “available surplus”, nor “gross profits”, nor “banking company”. All four were defined terms in section 2 of the 1965 Act — at clauses (4), (6), (18) and (8) respectively — and in the concordance tables to the commentary each of those four shows a blank on the Code side. They now exist only inside the operative sections that use them: allocable surplus and banking company in section 31(1), available surplus in section 33, gross profits in section 32.

That changes how the chapter is cited. “Allocable surplus as defined in section 2(4)” was a complete reference under the old Act; the equivalent under the Code is “the allocable surplus determined under section 31(1), read with sections 33 and 34”. It also leaves “banking company” — the term on which the whole 60%-or-67% split turns — without a statutory definition anywhere in the Code.

6. How is bonus computed where wages exceed the ceiling?

Section 26(2) provides that where the wages of an employee exceed the notified amount, the bonus payable under sub-sections (1) and (3) is calculated as if his wage were:

• the amount so determined by the appropriate Government; or
• the minimum wage fixed by the appropriate Government,

whichever is higher.

The structure is inherited from section 12 of the 1965 Act, which compared Rs. 7,000 with the minimum wage for the scheduled employment, whichever was higher. Two changes make it behave differently.

The first is that the Rs. 7,000 figure does not appear in the Code; the comparator is whatever amount the appropriate Government determines. The second is more consequential. Where an employment was not a scheduled employment under the 1948 Act there was no minimum wage to put into the comparison at all. The Code has abolished scheduled employment. Minimum wages now reach every employee, so the second limb always has a value in it.

The commentary observes at Para 26.16 that it is clear from section 26(2) that the appropriate Government may prescribe an amount for calculation of bonus which is more than the minimum wage fixed under the Code. The converse follows from the words of the sub-section rather than from the commentary: where the prescribed amount is lower than the minimum wage, the minimum wage is the figure the percentage runs on.

For an establishment paying at or near the minimum rate, that makes the minimum wage the effective floor of the bonus computation, and it moves twice a year, because Rule 4 of the Wages (Central) Rules, 2026 requires the variable dearness allowance to be computed before 1st April and again before 1st October.

7. Minimum, maximum, and bonus linked to productivity

Three tiers, in three sub-sections.

Tier	Provision	Entitlement
Minimum bonus	Section 26(1)	8.33% of the wages earned, or Rs. 100, whichever is higher — payable whether or not there is an allocable surplus
Bonus out of surplus	Section 26(3)	Where the allocable surplus exceeds the minimum bonus payable, an amount in proportion to the wages earned, subject to a maximum of 20% of those wages
Productivity-linked bonus	Section 26(5)	A demand for bonus above the minimum, on the basis of production or productivity, is determined by agreement or settlement — but the total, including the annual minimum bonus, shall not exceed 20%

Section 26(5) is the successor to section 31A of the 1965 Act, and the 20% ceiling on the total is the operative limit. An agreement or settlement can change the basis on which bonus is measured. It cannot lift the cap.

Two adjacent points, one of which the Code settles and one of which it does not.

Proportionate reduction — settled. Section 27 provides that where an employee has not worked all the working days in an accounting year, the minimum bonus under section 26(1) shall be proportionately reduced if it exceeds 8.33% of the wage for the days actually worked.

Customary and festival bonus — not settled. Section 37 permits an employer who has paid puja bonus or other customary bonus, or part of the statutory bonus in advance, to deduct it from the bonus payable for that accounting year. That is an adjustment provision, not a prohibition, and it does not say whether a customary payment sits inside the statutory bonus or above it. The commentary collects the authority at Paras 37.4 to 37.6, including the Supreme Court’s observation — made on the 1965 Act — that there is no categorical provision in that Act nullifying all other kinds of bonus, nor does such a conclusion arise by necessary implication, customary bonus resting on long usage rather than on any calculation of profits or available surplus. The reported cases go both ways on their facts, and section 37 is drafted in the same terms as section 17 of the 1965 Act, so the question is carried forward unresolved.

8. Set-on and set-off: the four-year clock

Section 36 carries surplus and deficiency across accounting years, and section 26(4) requires the carry-forward to be brought into account in computing the allocable surplus for the year.

Set-on — section 36(1). Where the allocable surplus for an accounting year exceeds the maximum bonus payable, the excess is carried forward for being set on in the succeeding accounting year and so on up to and inclusive of the fourth accounting year, subject to a limit of 20% of the total salary or wage of the employees in that year.

Set-off — section 36(2). Where there is no available surplus, or the allocable surplus falls short of the minimum bonus payable, and there is no sufficient amount set on to draw against, the deficiency is carried forward for being set off in the succeeding accounting year and so on up to and inclusive of the fourth accounting year.

Order of application — section 36(4). Where amounts have been carried forward, the set-on or set-off from the earliest accounting year is taken into account first. First in, first out.

Section 36(3) applies the principle, as prescribed by the Central Government, to all other cases not covered by sub-sections (1) and (2).

Rules 27 and 28 of the Wages (Central) Rules, 2026 prescribe the manner, and both direct that it be worked “in the manner as illustrated in Appendix A” to those Rules. Appendix A is a ten-year worked table. It assumes that the total minimum bonus at 8.33% of the annual wage bill for all employees is Rs. 1,04,167, from which it follows that the maximum at 20% is Rs. 2,50,000, and it then traces the carry-forward through profitable years, years where the surplus falls short, and a year of outright loss.

Two features of that table are the ones practitioners actually need.

Carry-forward lapses. The table’s own footnote records that the balance of Rs. 1,10,000 set on in year 2 lapses, and it lapses at year 6, the fourth year succeeding the year of the set-on. That is the four-year limit in section 36(1) doing its work: a set-on not drawn down within the permitted run of succeeding years is simply lost. An employer treating accumulated set-on as a permanent reserve against future minimum-bonus liability will find it is not.

A loss year does not suspend the minimum. At year 8 the table shows the allocable surplus as nil, due to loss, and the amount payable as bonus as Rs. 1,04,167 — the minimum — with a set-off of Rs. 69,167 carried forward. The minimum bonus is paid; the shortfall becomes a set-off against later years.

Where the computation has to be run on real numbers rather than the Appendix’s illustration, Taxmann’s Tools carries the working.

9. The first seven years of a new establishment

Sub-sections (6) to (8) of section 26 give a newly established undertaking a graduated entry, measured from the accounting year in which the employer first sells the goods produced or manufactured, or first renders services, from that establishment.

Accounting years	Position
First five — section 26(6)	Bonus is payable only in respect of a year in which the employer derives profit from that establishment, and is calculated without applying section 36. No set-on, no set-off.
Sixth and seventh — section 26(7)	Section 36 applies, with modifications. For the sixth year the set-on or set-off takes into account the excess or deficiency of the allocable surplus set on or set off for the fifth and sixth years; for the seventh, the fifth, sixth and seventh. The manner is prescribed by Rules 22 and 23.
Eighth onwards — section 26(8)	Section 36 applies as it applies to any other establishment.

Section 26(9) extends the whole of that regime, so far as may be, to new departments, undertakings or branches set up by existing establishments. A mature company opening a new plant gets the gestation treatment for that plant. It is the provision that makes sub-sections (6) to (8) matter to more than start-ups.

“Derives profit” is not left to ordinary usage. Explanation 1 provides that an employer shall not be deemed to have derived profit in any accounting year unless he has made provision for that year’s depreciation to which he is entitled under the Income-tax Act or the agricultural income-tax law, and the arrears of such depreciation and the losses incurred in respect of the establishment for previous accounting years have been fully set off against his profits. Both limbs. A book profit struck before absorbing carried-forward depreciation and losses is not profit for section 26(6).

Explanation 2 excludes from the reckoning any sale of goods produced or manufactured during the trial running of a factory, or during the prospecting stage of a mine or an oil-field. Where a question arises about such production, the appropriate Government decides it after giving the parties a reasonable opportunity of representing the case. That matters because the five-year clock starts from the first sale, and a trial-run sale wrongly treated as the trigger costs the establishment a year of the exemption.

On clubbing, section 30 provides that an establishment includes its departments, undertakings and branches, treated as parts of the same establishment for computing bonus. The proviso qualifies that: where a separate balance sheet and profit and loss account are prepared and maintained for a department, undertaking or branch for an accounting year, it is treated as a separate establishment for that year — unless it was, immediately before the commencement of that accounting year, treated as part of the establishment for the purpose of computing bonus. That closing rider is the operative part. A unit once brought inside the establishment for bonus cannot be separated out by the device of preparing separate accounts for it. The commentary works through the Supreme Court’s treatment of the question at Para 30.4.

10. The thirty-day test, and the trap in section 28

This deserves a section of its own, because the Code is precise about something widely assumed to work the other way, and because the commentary itself is not consistent about it.

Section 28 is headed “Computation of number of working days” and provides that an employee shall be deemed to have worked in an establishment in an accounting year also on days on which he has been laid off, on leave with wages, absent due to temporary disablement caused by an employment accident, or on maternity leave with wages.

But read the opening words. Section 28 begins: “For the purposes of section 27”.

Section 27 is the proportionate-reduction provision. Section 26(1) — the thirty-day eligibility test — is a different section, and section 28 does not reach it. The Section Notes to section 26 state the point squarely: section 28 applies to section 27 only, has no application for the purposes of other sections of the Code including section 26, and therefore has no application in determining whether an employee has worked for thirty working days for the purpose of eligibility.

This is not a change. Section 14 of the 1965 Act was drafted the same way, opening “For the purposes of section 13” — its own proportionate-reduction provision. The continuity is exact.

A caution for anyone working from the printed commentary. At Para 26.14 the discussion of the thirty-day condition says that thirty days of employment means the employee has earned wages for thirty days, and that this “would also include actual days of work in addition to paid holiday, paid leave, layoff” — which applies the section 28 list to section 26 eligibility. Para 28.1 leans the same way, describing section 28 as clarifying the days counted “for the purpose of payment of bonus or for the purposes of deciding the entitlement”. Those passages cannot be reconciled with the opening words of section 28 or with the Section Notes to section 26 in the same volume. The statute is the safer guide, and on the statute the deeming provision is confined to the proportionate-reduction calculation.

Whether that produces a sensible result is a separate question — an employee laid off for most of a year may earn wages without working thirty days — but it is what the section says, and it is what the 1965 Act said before it.

11. Who is disqualified from bonus?

Section 29 opens with a non obstante clause and disqualifies an employee who is dismissed from service for —

• fraud;
• riotous or violent behaviour while on the premises of the establishment;
• theft, misappropriation or sabotage of any property of the establishment; or
• conviction for sexual harassment.

The fourth ground is new. Section 9 of the 1965 Act carried the first three and stopped there; the side-by-side comparison in the commentary shows the addition plainly, and Para 29.2 records that the ground has been added for the first time.

Two points on how section 29 operates.

Dismissal is the trigger, not misconduct. The disqualification bites where the employee “is dismissed from service for” one of the four grounds. Misconduct visited with a lesser penalty does not engage section 29, though it may engage section 38, on which see below.

Whether the disqualification is confined to the year of dismissal is contested. The commentary collects the authority at Para 29.9. The Madras and Patna High Courts have held that disqualification under section 9 of the 1965 Act was not restricted to the bonus payable for the year in which the order of dismissal was passed, so that a dismissed employee stands disqualified from receiving bonus under the Act generally. The footnote to the same paragraph records that the Karnataka and Bombay High Courts have held otherwise. Section 29 re-enacts section 9 in the same terms as to the first three grounds, so the split is carried forward. Anyone advising on it should read the paragraph and the decisions rather than the proposition.

12. When and how must bonus be paid?

Section 39 sets the time limit, and it makes one change every payroll function has to implement.

Bonus must now be credited to a bank account. Section 39(1) requires all amounts payable by way of bonus to be paid “by crediting it in the bank account of the employee” within eight months from the close of the accounting year. Section 19 of the 1965 Act required bonus to be paid “in cash”. The commentary notes at Para 39.4 that the object of moving from cash to direct bank credit is to ensure the amount reaches the employee’s account and to minimise disputes about non-payment.

Situation	Time limit
Ordinary case	Eight months from the close of the accounting year — section 39(1)
Extension on application	The appropriate Government, or an authority it specifies, may on application and for sufficient reasons extend the eight months by order — but the total extended period may not exceed two years — proviso to section 39(1)
Dispute pending before an authority	One month from the date the award becomes enforceable or the settlement comes into operation — section 39(2)
Dispute is about a higher rate	The employer must still pay 8.33% of the wages earned within the eight months — proviso to section 39(2)

The last row is the one that gets missed. A pending dispute about quantum does not licence withholding the whole of the bonus. Where the dispute is about paying at a higher rate, the statutory minimum runs on the ordinary eight-month clock regardless.

Two provisions permit an employer to reduce what is actually paid out.

Section 37 — adjustment. Where the employer has paid puja bonus or other customary bonus, or has paid part of the statutory bonus before it became due, he may deduct the amount so paid from the bonus payable for that accounting year, and the employee receives only the balance.

Section 38 — deduction for loss. Where in any accounting year an employee is found guilty of misconduct causing financial loss to the employer, the employer may lawfully deduct the amount of that loss from the bonus payable in respect of that accounting year only, and the employee receives the balance if any. The commentary sets out the conditions at Para 38.2, including that the loss should be assessed in an enquiry conducted by an impartial enquiry officer. Two limits are built into the section: the deduction is confined to the year in question, so a loss cannot be carried into a later year’s bonus, and it is confined to the assessed amount of loss rather than the whole bonus.

Where a dispute arises about the quantum of bonus, section 31(3) permits the authority notified by the appropriate Government to call upon the employer to produce the balance sheet, but forbids the authority from disclosing information in it without the employer’s agreement. Section 31(2) provides that audited accounts of companies shall not normally be questioned.

13. Who falls outside Chapter IV altogether?

Two answers, and the first is the bigger one.

An establishment employing fewer than twenty persons. Section 41(2), dealt with at §2 above. That is the largest single exclusion in the Chapter and it operates on the establishment, not the employee.

The nine classes in section 41(1). Chapter IV does not apply to —

• employees of the Life Insurance Corporation of India;
• seamen as defined in section 3(42) of the Merchant Shipping Act, 1958;
• dock workers registered or listed under a scheme under the Dock Workers (Regulation of Employment) Act, 1948, and employed by registered or listed employers;
• employees of an establishment under the authority of any department of the Central or a State Government or a local authority;
• employees of the Indian Red Cross Society or a like institution including its branches, of universities and other educational institutions, and of institutions including hospitals, chambers of commerce and social welfare institutions established not for purposes of profit;
• employees of the Reserve Bank of India;
• employees of a public sector financial institution other than a banking company that the Central Government specifies by notification, having regard to its capital structure, its objectives and the nature of its activities, the nature and extent of financial assistance or concession given to it by the Government, and any other relevant factor;
• employees of inland water transport establishments operating on routes passing through any other country; and
• employees of any other establishment which the appropriate Government exempts by notification, having regard to the overall benefits under any other scheme of profit sharing available in that establishment to the employees.

The last of those nine is an open-ended exemption power and worth knowing about: an employer running its own profit-sharing scheme has a route to exemption that does not depend on falling within any of the named classes.

The words “established not for purposes of profit” in the fifth item carry more weight than their brevity suggests, and they are not applied mechanically. The commentary sets out the position at Para 41.15: whether an institution is established for purposes of profit has to be decided on the facts of the case. Para 41.17 collects the outcomes, and they do not run one way. The T.N. Water Supply and Drainage Board was held to be established with a profit motive, so its employees were entitled to bonus. The Swarajya Ashram was found to be an institution established for making profit, yet its activity, being the production of hand spun and hand woven cloth and its sale to better the condition of rural people, was held to fall within the corresponding exemption in the 1965 Act. Profit motive is therefore a strong indicator rather than a decisive test, and the character of the activity can carry an institution back inside the exemption.

Section 40 deals with the converse case — the circumstances in which Chapter IV does apply to an establishment in the public sector.

14. Quick answers

Which establishments does the bonus chapter apply to?
Under section 41(2) of the Code on Wages, 2019, an establishment in which twenty or more persons are employed, or were employed on any day during the accounting year. The Payment of Bonus Act, 1965 applied at ten.

What is allocable surplus?
The amount out of which bonus is paid. Under section 31(1) it is 60% of the available surplus for a banking company and 67% for any other establishment, the available surplus being computed under section 33.

What is the minimum bonus under the Code on Wages, 2019?
8.33% of the wages earned by the employee in the accounting year, or Rs. 100, whichever is higher — payable under section 26(1) whether or not there is an allocable surplus.

What is the maximum bonus?
20% of the wages earned. Section 26(3) caps bonus paid out of an allocable surplus at that figure, and section 26(5) caps the total including productivity-linked bonus at the same figure.

Is an employee above the wage ceiling entitled to bonus?
Yes. Unlike section 2(13) of the 1965 Act, the definition of “employee” in section 2(k) of the Code carries no wage ceiling, and section 26(2) provides for bonus to such an employee computed as if his wage were the notified amount or the minimum wage, whichever is higher. The Section Notes to section 26 in the standard commentary put it as: the employee will not be deprived of bonus.

Has the wage ceiling for bonus been notified?
Section 26(1) leaves it to be determined by notification by the appropriate Government. The standard commentary records that it had not been prescribed as at 20th July 2026, the date to which it states the law. The Rs. 21,000 figure was in the repealed Act and is not reproduced in the Code, so it should not be assumed.

How many days must an employee work to qualify?
At least thirty days in the accounting year, under section 26(1). Note that the deeming provision in section 28 — which counts lay-off, leave with wages, employment-injury absence and maternity leave — operates “for the purposes of section 27” and not for this eligibility test.

How long can set-on and set-off be carried forward?
Up to and inclusive of the fourth accounting year, under section 36(1) and (2). The earliest year’s carry-forward is applied first, under section 36(4), and an undrawn balance lapses.

Is bonus payable by a new establishment?
For the first five accounting years after the first sale of goods or rendering of services, only in a year in which the employer derives profit, and computed without set-on or set-off — section 26(6). Section 36 applies with modifications in the sixth and seventh years and in full from the eighth. Section 26(9) extends the same treatment to a new department, undertaking or branch of an existing establishment.

By when must bonus be paid, and how?
Within eight months of the close of the accounting year, by crediting it to the employee’s bank account, under section 39(1). Extensions may be granted on application but the total extended period cannot exceed two years. Section 19 of the 1965 Act required payment in cash; that requirement has not been carried forward.

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Chapter IV is treated section by section in Taxmann’s Law & Practice Relating to Code on Wages by Sunil Kumar Tripathi, Senior Advocate — twenty-two numbered paragraphs on section 26 alone, from the Full Bench formula and the historical development of bonus through to the current computation, with the text of the Code set beside each of the six provisions of the Payment of Bonus Act, 1965 that section 26 replaced. The Wages (Central) Rules, 2026 are reproduced with Appendices A to D. The law is stated as on 20th July 2026.

Related reading: the definition of wages under section 2(y) and the 50% rule · the Wages (Central) Rules, 2026, rule by rule · what survives the repeal of the four wage Acts · the Code on Wages 2019 — complete guide.