Rules 27 and 28 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.
Rule 27 says what to do when allocable surplus is more than the maximum bonus payable: the excess, up to twenty per cent of the total salary or wage of the employees in that year, is carried forward as set on for up to the fourth following accounting year. Rule 28 says what to do when there is no available surplus, or the allocable surplus falls short of the minimum bonus: the shortfall is carried forward as set off, again up to the fourth year. Both point to Appendix A for the manner. A payroll compliance audit can build the multi-year schedule that these rules require.
Rule 27 (set on): if allocable surplus exceeds the maximum bonus payable under section 26, the excess is carried forward, subject to a limit of twenty per cent of the total salary or wage of the employees in that accounting year, to be set on in the succeeding year and so on up to and inclusive of the fourth accounting year. Rule 28 (set off): if there is no available surplus or the allocable surplus is less than the minimum bonus, and no set on is available to cover it, the minimum amount or the deficiency is carried forward to be set off in the succeeding year, up to and inclusive of the fourth accounting year. Both follow Appendix A. The Rules apply where the Central Government is the appropriate Government; otherwise the State's own wage rules apply.
The section behind these rules
Section 36 of the Code is the source. Sub-section (1): where allocable surplus exceeds the maximum bonus under section 26, the excess is carried forward for set on, subject to twenty per cent of total salary or wage, up to and including the fourth succeeding year, "in such manner as may be prescribed by the Central Government". Sub-section (2): where there is no available surplus or the allocable surplus is short of the minimum bonus and no sufficient set on can be used, the minimum amount or the deficiency is carried forward for set off up to and including the fourth succeeding year. Sub-section (3) applies the principle to other cases. Sub-section (4): the amount carried forward from the earliest accounting year is taken into account first. See section 36. Section 26(3) caps bonus at twenty per cent of wages earned, and section 26(1) sets the minimum; see section 26.
Rule 27: set on
Rule 27 repeats the section in operational terms. For any accounting year where allocable surplus exceeds the maximum bonus payable under section 26:
- the excess is carried forward, limited to twenty per cent of the total salary or wage of the employees employed in the establishment in that accounting year;
- it is set on in the succeeding accounting year, and so on up to and inclusive of the fourth accounting year;
- it is used to pay bonus "in the manner as illustrated in Appendix A".
Rule 28: set off
Rule 28 applies where for an accounting year:
- there is no available surplus, or the allocable surplus falls short of the minimum bonus payable under section 26; and
- there is no amount or sufficient amount carried forward and set on under rule 27 that can be used for the minimum bonus.
Then "such minimum amount or the deficiency, as the case may be, shall be carried forward for being set off in the succeeding accounting year and so on upto and inclusive of the fourth accounting year", as illustrated in Appendix A.
| Rule 27: set on | Rule 28: set off | |
|---|---|---|
| Trigger | allocable surplus above the maximum bonus | no available surplus, or allocable surplus below the minimum bonus, with no sufficient set on |
| What is carried | the excess, limited to 20 per cent of total salary or wage of that year | the minimum amount or the deficiency |
| For how long | the succeeding year, up to and inclusive of the fourth accounting year | the succeeding year, up to and inclusive of the fourth accounting year |
| Used for | paying bonus in later years | being recovered from later years' surplus |
| Illustrated in | Appendix A | Appendix A |
Appendix A, row by row
Appendix A (headed "See rules 22, 23, 27 and 28") states its own assumptions: the minimum, 8.33 per cent of the annual salary or wage payable to all employees, is assumed to be Rs 1,04,167, so the maximum (twenty per cent) is Rs 2,50,000. These are the Appendix's illustration, not rates. Column 2 is the allocable amount (the Appendix words it as sixty or sixty-seven per cent of available surplus, as the case may be); column 3 is the bonus paid; columns 4 and 5 show set on or set off of the year and the total carried forward.
| Year | Allocable amount (Rs) | Bonus paid (Rs) | What happens |
|---|---|---|---|
| 1 | 1,04,167 | 1,04,167 (minimum) | nothing carried |
| 2 | 6,35,000 | 2,50,000 (maximum) | excess carried; set on shown as 2,50,000 (the twenty per cent limit) |
| 3 | 2,20,000 | 2,50,000, including 30,000 from year 2 | set on from year 2 falls to 2,20,000 |
| 4 | 3,75,000 | 2,50,000 | 1,25,000 set on; totals 2,20,000 (year 2) and 1,25,000 (year 4) |
| 5 | 1,40,000 | 2,50,000, including 1,10,000 from year 2 | year 2 set on left 1,10,000; year 4 set on 1,25,000 |
| 6 | 3,10,000 | 2,50,000 | 60,000 set on; the 1,10,000 from year 2 lapses |
| 7 | 1,00,000 | 2,50,000, including 1,25,000 from year 4 and 25,000 from year 6 | 35,000 of year 6 left |
| 8 | Nil (loss) | 1,04,167, including 35,000 from year 6 | 69,167 set off |
| 9 | 10,000 | 1,04,167 | 94,167 set off; totals 69,167 (year 8) and 94,167 (year 9) |
| 10 | 2,15,000 | 1,04,167 after setting off 69,167 (year 8) and 41,666 (year 9) | 52,501 of year 9 set off left |
The Appendix footnote says "the balance of Rs 1,10,000 set on from year-2 lapses": year 2's set on may be carried only up to and including the fourth following year, which is year 6. The "+" marker for that footnote does not appear against a row in the printed table; the row 6 position is where the lapse takes effect.
What this shows
- Earliest first: in year 5 the amount from year 2 is used before year 4's (section 36(4)).
- Cap on the carry: the amount set on is limited by the twenty per cent rule; it cannot grow beyond it.
- Lapse: set on that is not used within the four years is lost.
- Set off is recovered from later surplus: in year 10, surplus first clears the year 8 and year 9 deficiencies, and the bonus paid is still not below the minimum.
Drafting points. Rule 27's limit speaks of twenty per cent "of the total salary or wage of the employees"; in Appendix A that figure is the Rs 2,50,000 maximum, which is also the maximum bonus. The Appendix's year 2 row therefore shows set on of Rs 2,50,000, which is the limit applied to an excess larger than that. Rule 28 refers to "set on under rule 27 which shall be utilised"; the grammar is loose but the sense is clear.
Need help with the multi-year bonus schedule?
Set on and set off cannot be done one year at a time. The earliest amount is used first, the four-year window runs separately for each year's amount, and the figures must tie to the accounts. Our payroll compliance audit team can build and keep the schedule for you.
Key takeaways
- Excess allocable surplus over the maximum bonus is set on, up to twenty per cent of total salary or wage, for up to the fourth succeeding year (rule 27).
- A shortfall below the minimum bonus is set off, for up to the fourth succeeding year (rule 28).
- The earliest year's amount is used first.
- Unused set on lapses after four years.
- Appendix A's Rs 1,04,167 and Rs 2,50,000 are its assumed figures, not rates.
Read next
- Rules 21 to 23: bonus to contractual employees and the sixth and seventh accounting years
- Rules 24 to 26: computation of gross profits and further deductions
- Appendices A to D: bonus, set on, set off and gross profit computation
- Payment of Bonus Act 1965: eligibility, calculation, minimum and maximum bonus
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.