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I just recently learnt that there is a cap of bonus paid to employees at 20% of the salary. My questions are:
i) Is it legally allowed to pay bonus higher than the 20% cap?
ii) What should my company do if the employees have been given >20%?

Any advice will be appreciated!

Best Regards,


2[11. Payment of maximum bonus.—(1) Where in respect of any accounting year referred to in section 10, the allocable surplus exceeds the amount of minimum bonus payable to the employees under that section, the employer shall, in lieu of such minimum bonus, be bound to pay to every employee in respect of that accounting; year bonus which shall be an amount in proportion to the salary or wage earned by the employee during the accounting year subject to a maximum of twenty per cent, of such salary or wage. (extracts from THE PAYMENT OF BONUS ACT, 1965)

2 Section 11 omitted by Act 23 of 1976, sec. 8 (w.r.e.f. ) and ins. by Act 66 of 1980, sec. 6 (w.r.e.f. 21.8.1980)

in my view you can not pay bonus more than 20 % of salary as per bonus act .if still u want to pay ,you can pay it in ex gratia head.
on bonuscompany gets tax exemption but on exgrtia no tax exemption.
j s malik

Dear JS,
Thanks for your advice. What is the consequence to the company if we used to pay 20.8% or equivalent to 2.5 month salaries. Would there be any penalties for the past years? Where can I check the tax rates of exgratia and the legal consequence of paying bonus >20%.
Best regards,

Dear Sanjay,
If you have paid bonus which is more than the maximum % i.e. 20% then the extra amount paid will be considered as ex-gratia amount. This will be taxable.
You may take advise from your C A or tax consultant in this behalf.
Skylark associates, Gurgaon

Hello Khola,
Sorry to response late as I was out of the town. Would it be taxable to the employees or employers? I want do more self-studies before asking advice from the tax advisor.
Thanks for your information!!!

dear whatever amount paid to emplyoee whether exgratia or bonus will be taxable to individual. employer will be exempted tax on bonus but have to pay on exgratia. tks js malik
Employer can pay more than 20% bonus to the employees. The minimum bonus is 8.33 %.

Whether paid as bonus or ex-gratia, the bonus amount is taxable. Statutory bonus is very much covered in income tax.

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