Is Bonus Taxable in India? How Bonus Tax Works
A bonus is taxed as salary at your slab rate in the year you receive it. Why TDS spikes in the bonus month, worked examples for 2026-27, and ways to keep more of it.
Updated 27 September 2026 · 4 minute read
Yes, a bonus is fully taxable. Performance bonuses, variable pay, joining bonuses, retention bonuses and festival bonuses are all salary income, taxed at your slab rate in the tax year you receive them. There is no separate bonus tax rate. What makes a bonus feel heavily taxed is timing: employers usually deduct most of the extra tax in the month they pay it.
How a bonus is taxed
A bonus is added to your salary for the year and the combined figure goes through the normal slabs. The extra tax is simply the difference between the tax on salary plus bonus and the tax on salary alone. Because the bonus sits on top of your salary, it is taxed at your highest slab, which is why the share lost to tax is usually higher than your average rate.
For tax year 2026-27, in the new regime, using the income tax calculator:
| Salary | Bonus | Tax without bonus | Tax with bonus | Extra tax on the bonus |
|---|---|---|---|---|
| ₹11 lakh | ₹2 lakh | ₹0 | ₹26,000 | ₹26,000, or 13% |
| ₹15 lakh | ₹2 lakh | ₹97,500 | ₹1,30,000 | ₹32,500, or 16.3% |
| ₹30 lakh | ₹5 lakh | ₹4,75,800 | ₹6,31,800 | ₹1,56,000, or 31.2% |
The first row shows a trap worth knowing. An ₹11 lakh salary pays nothing, and a bonus that keeps taxable income within ₹12 lakh would cost nothing either. This ₹2 lakh bonus takes taxable income to ₹12.25 lakh, just past the line where the rebate stops. Marginal relief caps the tax at the amount above ₹12 lakh, so the tax is ₹25,000 plus cess: almost every rupee above the line goes in tax.
Why TDS jumps in the bonus month
Your employer deducts TDS under section 392 by estimating your tax for the whole year and spreading it across the months. A bonus they did not plan for raises the estimate late in the year, and most payroll systems collect the whole extra amount from the bonus payout itself. So a ₹2 lakh bonus can arrive as ₹1.5 lakh or less. The tax is not higher; it is just taken all at once. If too much was deducted, you get it back when you file. The TDS on salary guide explains how the monthly figure is set.
Statutory bonus under the Code on Wages
Separate from performance pay, the Code on Wages, 2019 carries forward the old statutory bonus for eligible employees: a minimum of 8.33% and a maximum of 20% of wages earned in the year, for employees below the wage limit the code sets. It is taxed exactly like any other bonus.
Performance bonuses and variable pay are contractual, and the labour codes leave them out of the definition of wages, so they do not count towards PF or gratuity. How the labour codes change your salary covers that definition.
Ways to keep more of a bonus
- Old regime: bring forward section 123 investments, health insurance under section 126 and NPS contributions into the bonus year, if you have not used the limits.
- Either regime: ask whether your employer will put part of the bonus into NPS as an employer contribution. Up to 14% of basic plus DA is deductible in the new regime under section 124; see employer NPS in the new regime.
- Arrears, not bonus: if the payment is salary that relates to an earlier year, such as a delayed increment, you can claim relief under section 157 (the old section 89) so it is not taxed at this year's higher rate.
- Check the regime every year. A large bonus can change which regime is cheaper for that year.
A joining bonus with a clawback clause, or a notice buyout paid by your new employer, has its own wrinkles, covered in joining bonus and notice buyout tax.
Frequently asked questions
Is bonus taxable in India?
Yes. Every kind of bonus paid by an employer is salary income and is taxed at your slab rate in the year you receive it.
Is bonus taxed at a higher rate than salary?
No. There is no special rate. A bonus is added to your salary, so it is taxed at your highest slab rate, which is usually above your average rate. That is why it feels more heavily taxed.
Why was so much TDS deducted from my bonus?
Because employers usually collect the entire extra tax caused by the bonus in the month it is paid. Any excess is refunded when you file your return.
How do I calculate tax on my bonus?
Work out the tax on your salary with and without the bonus; the difference is the tax on the bonus. The income tax calculator does this if you run it twice.
Is variable pay part of wages for PF?
No. Under the labour codes, performance-based incentives and the variable part of pay are excluded from wages, so they do not attract PF or count towards gratuity.