Rules 24 to 26 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Three rules lay the base for the bonus computation. Rule 24 says gross profits of a banking company are computed as in Appendix B. Rule 25 says gross profits of any other employer are computed as in Appendix C. Rule 26 says the further sums in Appendix D are deducted from gross profit as prior charges. These feed the available surplus and, through it, the allocable surplus out of which bonus is paid. A payroll compliance audit can reconcile your bonus working to these formats.
Gross profits derived by an employer from an establishment for the accounting year are calculated, for a banking company, in the manner of Appendix B (rule 24, under section 32(a)), and in any other case in the manner of Appendix C (rule 25, under section 32(b)). The further sums specified for the employer in Appendix D are deducted from the gross profit as prior charges under section 34(c) (rule 26). The Appendices set out the percentages and items; the rules only point to them. The Rules apply where the Central Government is the appropriate Government; otherwise the State's own wage rules apply.
The sections behind these rules
- Section 32: gross profits "shall, (a) in the case of a banking company, be calculated in the manner as may be prescribed by the Central Government; (b) in any other case, be calculated in the manner as may be prescribed by the Central Government". See sections 32 and 33.
- Section 33: available surplus is the gross profits for the year after deducting the sums in section 34, with a proviso for years after commencement that adds a direct tax difference.
- Section 34: the sums deducted from gross profits as prior charges are (a) depreciation admissible under section 32(1) of the Income-tax Act or the agricultural income-tax law; (b) subject to section 35, direct tax the employer is liable to pay for the year; and (c) "such further sums in respect of the employer as may be prescribed by the Central Government". See sections 34 and 35.
The Code refers to the Income-tax Act, 1961 as it stands; the Appendices also name it. The Income-tax Act, 2025 has replaced the 1961 Act from 1 April 2026. We quote the references as printed and give no new section numbers; see our income-tax guides for the current Act.
Rule 24: banking company, Appendix B
Rule 24: the gross profits derived by an employer from an establishment in respect of the accounting year "shall in the case of banking company under clause (a) of section 32, be calculated in the manner specified in Appendix B".
Rule 25: other employers, Appendix C
Rule 25: the same, "in a case other than banking company under clause (b) of section 32, be calculated in the manner specified in Appendix C".
How the two formats are built
Both Appendices are a seven-item table (Item No., Particulars, amount of sub-items, amount of main items, remarks), headed "Computation of gross profits", for an "accounting year ending ....". They have the same shape:
| Item | What it does | Appendix B (banking) | Appendix C (other) |
|---|---|---|---|
| 1 | Starting point | Net profit as shown in the Profit and Loss Account after usual and necessary provisions (with a star note on actual tax provision) | Net profit as per profit and loss account |
| 2 | Add back provisions for | bonus to employees; depreciation; development rebate reserve; any other reserves | bonus to employees; depreciation; direct taxes including the provision for previous years; development rebate or investment or development allowance reserve; any other reserves |
| 3 | Add back also | bonus paid for previous years; excess gratuity debited; donations above the admissible amount; capital expenditure and capital losses (with exceptions); amount certified by RBI under section 34A(2) of the Banking Regulation Act, 1949; losses of or expenditure on business outside India | bonus paid for previous years; excess gratuity; donations; annuity under section 280D of the Income Tax Act; capital expenditure and capital losses; losses of or expenditure on business outside India |
| 4 | Add also | income, profits or gains credited directly to reserves, other than listed exclusions | same, for reserves, with similar exclusions |
| 5 | Total | items 1, 2, 3 and 4 | items 1, 2, 3 and 4 |
| 6 | Deduct | capital receipts and profits; profits of business outside India; income of foreign banking companies from investments outside India; expenditure or losses debited directly to reserves; proportionate head-office expenses of foreign banking companies; refunds of excess direct tax and written-back provisions; cash subsidy for specified purposes | capital receipts and profits; profits of business outside India; income of foreign concerns from investments outside India; expenditure or losses debited directly to reserves; head-office expenses of foreign concerns; refunds and written-back provisions; cash subsidy for specified purposes |
| 7 | Result | Gross profits for purposes of bonus (item 5 minus item 6) | same |
Footnotes in both say that provisions and reserves are added back "if, and to the extent, charged to Profit and Loss Account", and the deductions in item 6 are made "if, and to the extent, credited to Profit and Loss Account". Appendix B's footnote (3) applies a proportion of Indian gross profit to total world gross profit.
Drafting point in the print. Appendix B item 3 and Appendix C item 3 do not number their sub-items the same way (Appendix C has an "(aa)" for the gratuity item, Appendix B lists it as "(b)"). Read each Appendix item by item as printed.
Rule 26: further sums, Appendix D
Rule 26: "The further sums specified in respect of the employer in Appendix D shall be deducted from the gross profit as prior charges under clause (c) of section 34."
Appendix D has five categories of employer:
| Item | Employer | Further sums deducted (as printed) |
|---|---|---|
| 1 | Company other than a banking company | dividends payable on preference share capital at the actual rate; 8.5 per cent of paid-up equity share capital at the start of the year; 6 per cent of reserves in the balance sheet at the start of the year (including profits carried forward). Foreign company proviso: 8.5 per cent on net fixed and current assets in India less current liabilities |
| 2 | Banking company | preference dividends; 7.5 per cent of paid-up equity share capital; 5 per cent of reserves; sums transferred to a statutory reserve fund or to reserves in India under RBI direction or advice, "whichever is higher"; proviso for foreign banking companies by working-funds proportion |
| 3 | Corporation | 8.5 per cent of paid-up capital; 6 per cent of reserves |
| 4 | Co-operative society | 8.5 per cent of capital invested in its establishment; sums carried to a reserve fund under co-operative law |
| 5 | Any other employer | 8.5 per cent of capital invested in the establishment; provisos on annuity deposit, firms (25 per cent of gross profits after depreciation, as remuneration to partners, with a five lakh rupee per partner limit) and individuals or HUFs (25 per cent or five lakh rupees, whichever is less) |
An Explanation excludes from "reserves" amounts set apart for direct tax payable, admissible depreciation and declared dividends, but includes excess set aside for tax or depreciation.
These percentages are printed in the Appendix. Use the printed text, not the table above, for any actual computation, because the provisos have conditions that a summary cannot carry.
Illustration (hypothetical arithmetic). A company other than a bank has paid-up equity share capital of Rs 10 crore at the start of the year. Item 1(ii) of Appendix D deducts 8.5 per cent of that, Rs 85 lakh, as a prior charge, in addition to depreciation, tax and the other items.
Need help preparing the bonus computation?
Gross profit workings for bonus take specific add-backs and deductions, and a missing item changes the bonus pool. Our payroll compliance audit team can prepare the Appendix B or C working, apply the Appendix D deductions and reconcile to the bonus you have paid.
Key takeaways
- Banks use Appendix B; all other employers use Appendix C (rules 24 and 25).
- Both start from net profit, add back certain provisions and items, and deduct certain receipts to reach gross profits for bonus.
- Appendix D sums are deducted as prior charges under section 34(c) (rule 26).
- Appendix D percentages for companies are 8.5 per cent of equity capital and 6 per cent of reserves; banks 7.5 and 5 per cent.
- The Appendices refer to the Income-tax Act, 1961, since replaced from 1 April 2026.
Read next
- Rules 27 and 28: carrying forward, set on and set off
- Appendices A to D: bonus, set on, set off and gross profit computation
- Sections 32 and 33: computation of gross profits and available surplus
- Bonus calculation under the Payment of Bonus Act
Disclaimer: Based on the Code on Wages, 2019 (as enacted) and, where noted, the Code on Wages (Central) Rules, 2026 (G.S.R. 343(E), 8 May 2026), as on 1 October 2026. The Code is in force from 21 November 2025; State Governments make their own rules for establishments where the State is the appropriate Government, and wage rates are notified separately. Verify the current position before acting.