Section 26: Eligibility for bonus, etc

Finin2min analysis — what the section actually does

Full statutory text — Section 26

26. Eligibility for bonus, etc.—(1) There shall be paid to every employee, drawing wages not
exceeding such amount per mensem, as determined by notification, by the appropriate Government, by
his employer, who has put in at least thirty days work in an accounting year, an annual minimum bonus
calculated at the rate of eight and one-third per cent. of the wages earned by the employee or one hundred
rupees, whichever is higher whether or not the employer has any allocable surplus during the previous
accounting year.
    (2) For the purpose of calculation of the bonus where the wages of the employee exceeds such
amount per mensem, as determined by notification by the appropriate Government, the bonus payable to
such employee under sub-sections (1) and (3) shall be calculated as if his wage were such amount, so
determined by the appropriate Government or the minimum wage fixed by the appropriate Government,
whichever is higher.
    (3) Where in respect of any accounting year referred to in sub-section (1), the allocable surplus
exceeds the amount of minimum bonus payable to the employees under that sub-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 wages earned by the employee during the
accounting year, subject to a maximum of twenty per cent. of such wages.
    (4) In computing the allocable surplus under this section, the amount set on or the amount set off
under the provisions of section 36 shall be taken into account in accordance with the provisions of that
section.
    (5) Any demand for bonus in excess of the bonus referred to in sub-section (1), either on the basis of
production or productivity in an accounting year for which the bonus is payable shall be determined by an
agreement or settlement between the employer and the employees, subject to the condition that the total
bonus including the annual minimum bonus referred to in sub-section (1) shall not exceed twenty per
cent. of the wages earned by the employee in the accounting year.
    (6) In the first five accounting years following the accounting year in which the employer sells the
goods produced or manufactured by him or renders services, as the case may be, from such establishment,
bonus shall be payable only in respect of the accounting year in which the employer derives profit from
such establishment and such bonus shall be calculated in accordance with the provisions of this Code in
relation to that year, but without applying the provisions of section 36.
     (7) For the sixth and seventh accounting years following the accounting year in which the employer
sells the goods produced or manufactured by him or renders services, as the case may be, from such
establishment, the provisions of section 36 shall apply subject to the following modifications, namely:--
         (i) for the sixth accounting year set on or set off, as the case may be, shall be made, in the manner
    as may be prescribed by the Central Government, taking into account the excess or deficiency, if any,
    as the case may be, of the allocable surplus set on or set off in respect of the fifth and sixth accounting
    years;
       (ii) for the seventh accounting year set on or set off, as the case may be, shall be made, in the
    manner as may be prescribed by the Central Government, taking into account the excess or

    deficiency, if any, as the case may be, of the allocable surplus set on or set off in respect of the fifth,
    sixth and seventh accounting years.
    (8) From the eighth accounting year following the accounting year in which the employer sells the
goods produced or manufactured by him or renders services, as the case may be, from such establishment,
the provisions of section 36 shall apply in relation to such establishment as they apply in relation to any
other establishment.
    Explanation 1.—For the purpose of sub-section (6), an employer shall not be deemed to have derived
profit in any accounting year, unless—
        (a) he has made provision for depreciation of that year to which he is entitled under the Income-
    tax Act or, as the case may be, under the agricultural income tax law; and
        (b) the arrears of such depreciation and losses incurred by him in respect of the establishment for
    the previous accounting years have been fully set off against his profits.
        Explanation 2.—For the purposes of sub-sections (6), (7) and (8), sale of the goods produced or
    manufactured during the course of the trial running of any factory or of the prospecting stage of any
    mine or an oil-field shall not be taken into consideration and where any question arises with regard to
    such production or manufacture, the appropriate Government may, after giving the parties a
    reasonable opportunity of representing the case, decide upon the issue.
   (9) The provisions of sub-sections (6), (7) and (8) shall, so far as may be, apply to new departments or
undertakings or branches set up by existing establishments.

How to apply this provision

1. Primary statutory test — (1) There shall be paid to every employee, drawing wages not exceeding such amount per mensem, as determined by notification, by the appropriate Government, by his employer, who has put in at least thirty days work in an accounting year, an annual minimum bonus calculated at the rate of eight and one-third per cent. of the wages earned by the employee or one hundred rupees, whichever is higher whether or not the…
2. Additional operative limb — (2) For the purpose of calculation of the bonus where the wages of the employee exceeds such amount per mensem, as determined by notification by the appropriate Government, the bonus payable to such employee under sub-sections (1) and (3) shall be calculated as if his wage were such amount, so determined by the appropriate Government or the minimum wage fixed by the appropriate Government, whichever is higher.
3. Qualification / exception to test — Explanation 1.—For the purpose of sub-section
4. Numerical or timing control — Eligibility for bonus, etc.—(1) There shall be paid to every employee, drawing wages not exceeding such amount per mensem, as determined by notification, by the appropriate Government, by his employer, who has put in at least thirty days work in an accounting year, an annual minimum bonus calculated at the rate of eight and one-third per cent. of the…
5. Central Rule mapping — 21, 22, 23, 27, 28. Read the mapped provision together with this text rather than treating the concordance as a substitute for it.
6. Evidence file — retain facts and records proving the role/status of: Employer, Employee / worker, Appropriate Government, Central Government.

Rules, forms and cross-references

A direct concordance is not exhaustive. Central/State jurisdiction, schemes, authority appointments, saved instruments and later notifications may change the practical route without changing the section wording.

Worked example

Q&A — Section 26

Source & verification trail