Bonus Tax Calculator
Calculate income tax on annual bonus / variable pay / festival bonus in India. All bonuses are added to salary income and taxed at your marginal slab rate (5/10/15/20/30%) plus 4% cess.
Details
Result
Net Bonus After Tax
₹1,37,600
Total Tax (incl 4% cess)
₹62,400
Income Tax
₹60,000
Health & Education Cess
₹2,400
Effective Tax Rate
31.20%
For estimation only. Not professional financial, tax, or legal advice. Consult a qualified advisor before making decisions. Full disclaimer.
How bonus is taxed in India
Performance bonuses, festival bonuses, and variable pay are all classified as "salary income" under Section 17(1) of the Income-tax Act. There's no special bonus tax — your bonus simply adds to your salary and is taxed at your applicable marginal slab rate (5%, 10%, 15%, 20%, or 30%) plus 4% Health & Education Cess.
Why your bonus paycheque looks smaller than expected
When your employer pays a bonus, they don't deduct just the marginal tax — they recompute your YTD (year-to-date) income with the bonus added, then deduct enough TDS to cover the full year's estimated tax. This often means a much heavier TDS deduction in the bonus month than you expected.
Worked example: ₹2 lakh bonus, ₹15 lakh salary
- Annual salary: ₹15 lakh + ₹2 lakh bonus = ₹17 lakh total
- Standard deduction (new regime FY 2026-27): ₹75,000
- Taxable: ₹16.25 lakh
- Tax under new regime:
- 0-3L: ₹0
- 3-7L: ₹4L × 5% = ₹20K
- 7-10L: ₹3L × 10% = ₹30K
- 10-12L: ₹2L × 15% = ₹30K
- 12-15L: ₹3L × 20% = ₹60K
- 15-16.25L: ₹1.25L × 30% = ₹37.5K
- Total: ₹1.775L + 4% cess = ₹1.846L
- Tax just on the ₹2L bonus (marginal): ₹2L × 30% × 1.04 = ₹62,400
Performance bonus vs sign-on bonus vs retention bonus — same tax
All three are added to your salary and taxed identically:
- Performance bonus: Annual; paid based on company + individual performance
- Sign-on bonus / joining bonus: Lump sum at job start. Sometimes recoverable if you leave within 1-2 years.
- Retention bonus: Paid for staying through a critical milestone (acquisition, IPO).
- Festive bonus: Diwali, Pongal — flat or % of salary, paid annually.
Statutory Bonus Act bonus (different)
The Payment of Bonus Act, 1965 mandates that companies with 20+ employees pay a statutory bonus of 8.33-20% of basic + DA (capped at ₹7,000/month) to employees earning under ₹21,000/month. This is also taxable as salary at slab rate but is governed by labour law for entitlement.
Tax-saving on a year with high bonus
- NPS Tier 1 contribution: Up to ₹50K under Section 80CCD(1B) (old regime). Saves up to ₹15K-15.6K tax depending on slab.
- Use 80C effectively: ELSS, PPF, EPF, life insurance up to ₹1.5L deduction (old regime).
- Section 80D: Health insurance premium up to ₹25K-50K deduction (old regime).
- Donation under Section 80G: 50% or 100% deduction (old regime, with limits).
- Pre-pay home loan principal: Within 80C bucket (old regime).
Net impact: ₹2L 80C + ₹50K NPS + ₹25K 80D = ₹2.75L deduction. At 30% slab + cess: ₹85,800 tax saved.
The TDS surge in bonus month — what to do
When you receive a ₹2L bonus, your employer might deduct ₹70K+ as TDS that month, leading to a much smaller take-home. This is normal — you'll get the excess refunded in your ITR if your annual deductions push down the tax liability.
To avoid the squeeze, submit Form 12BB to your employer DECLARING your planned investments BEFORE the bonus month. The employer adjusts TDS accordingly.
Common mistakes
- Not budgeting for tax on bonus. 30% of a ₹2L bonus is ₹60K. Plan for it.
- Missing 80C deadlines. All 80C investments must be made by March 31.
- Confusing gross bonus with net bonus. Always factor in tax.
- Forgetting variable pay is bonus. Quarterly variable pay is also salary income, taxed similarly.
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