Section 41 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.
Section 41 of the Code on Wages, 2019 says who the bonus Chapter does not cover. Sub-section (1) lists nine groups, from LIC employees to employees of institutions not run for profit. Sub-section (2) then fixes the size test: the Chapter applies to an establishment where twenty or more persons are or were employed on any day of an accounting year.
Nothing in the bonus Chapter applies to the nine groups in s.41(1)(a) to (i), such as LIC employees, seamen, dock workers under a scheme, employees of Government departments, universities, hospitals and charities not run for profit, and RBI employees. Two groups depend on a notification: certain public sector financial institutions (clause (g)) and other establishments exempted by the appropriate Government (clause (i)). Subject to that list, the Chapter applies to an establishment with twenty or more persons employed on any day in an accounting year (s.41(2)).
The nine exclusions in sub-section (1)
"Nothing in this Chapter shall apply to" the following. The Chapter here is the bonus Chapter that runs from the eligibility provisions to the public sector section.
| Clause | Who is outside the bonus Chapter | Notification needed? |
|---|---|---|
| (a) | Employees employed by the Life Insurance Corporation of India | No |
| (b) | Seamen as defined in clause (42) of section 3 of the Merchant Shipping Act, 1958 | No |
| (c) | Employees registered or listed under a scheme under the Dock Workers (Regulation of Employment) Act, 1948, and employed by registered or listed employers | No |
| (d) | Employees employed by an establishment under the authority of any department of the Central Government, a State Government or a local authority | No |
| (e) | Employees of (i) the Indian Red Cross Society or similar institutions including branches; (ii) universities and other educational institutions; (iii) institutions including hospitals, chambers of commerce and social welfare institutions established not for purposes of profit | No |
| (f) | Employees employed by the Reserve Bank of India | No |
| (g) | Employees of a public sector financial institution other than a banking company, which the Central Government may specify | Yes, Central Government |
| (h) | Employees of inland water transport establishments operating on routes passing through any other country | No |
| (i) | Employees of any other establishment which the appropriate Government may exempt, having regard to the overall benefits under any other profit-sharing scheme available to the employees | Yes, appropriate Government |
Reading clause (d)
The words are "employees employed by an establishment under the authority of any department of the Central Government or a State Government or a local authority". The test is the establishment being under the authority of a department. Whether a Government-owned company counts as "under the authority of a department" is a question to settle on its facts; for public sector bonus, see our article on section 40. If you need the position confirmed for a particular entity, our legal consultation service can review it.
Reading clause (e)
Three limbs sit under one clause. The first two (Red Cross type institutions, universities and other educational institutions) are listed without a "not for profit" qualifier in the text. The "not established for purposes of profit" words are attached to the third limb, institutions including hospitals, chambers of commerce and social welfare institutions. Whether a coaching company or a private school run as a commercial venture is an "educational institution" is not answered by the text; take advice before assuming the exclusion.
Clauses (g) and (i): notification decides
Clause (g) lets the Central Government specify a public sector financial institution (not a banking company) after considering four factors listed in the clause: its capital structure; its objectives and the nature of its activities; the nature and extent of financial assistance or concession given to it by the Government; and any other relevant factor. Clause (i) lets the appropriate Government exempt any other establishment, having regard to the overall benefits under any other scheme of profit sharing available to the employees. The Code does not name any institution under either clause, and no list is printed in the text. Check the latest notifications before relying on them.
Sub-section (2): the twenty-person rule
"Subject to the provisions of sub-section (1) and notwithstanding anything contained in any other provisions of this Chapter", the Chapter applies to an establishment "in which twenty or more persons are employed or were employed on any day during an accounting year."
Three practical points follow from the wording:
- Any single day counts. One day in the accounting year with twenty persons is enough; the test is not an average.
- "Persons", not "employees". The text uses "persons". Who counts as an employee is in section 2; see our article on the definitions of employee, employer and worker. Whether contract workers are counted is not settled by this sub-section.
- The exclusions come first. An establishment on the list in sub-section (1) is outside the Chapter even if it has hundreds of employees.
Hypothetical example. A manufacturer employs 14 persons for most of the year but takes 8 trainees and casual hands for one week in October, so that 22 persons are on its rolls on a single day. On the wording of s.41(2), the bonus Chapter applies for that accounting year, subject to the eligibility conditions for each employee in section 26. The figures are invented to show the counting only.
A drafting note: sub-section (2) opens with "notwithstanding anything contained in any other provisions of this Chapter", yet the threshold is the gate to the Chapter. Read the section with section 26(1) so that the threshold and employee eligibility are both tested. The old Act's twenty-person threshold is covered in our guide on applicability under the old Bonus Act.
What the Central Rules add
The Code on Wages (Central) Rules, 2026 (G.S.R. 343(E), 8 May 2026) apply only where the Central Government is the appropriate Government. Where the State Government is the appropriate Government, the State's own wage rules apply. In the Rules text read for this article, no rule adds to section 41. Exemptions under clauses (g) and (i) come by notification, not by rule. The Rules do carry the bonus computation appendices; see the appendices article.
Need help with bonus applicability?
Many employers assume they are outside the bonus Chapter because of their sector or headcount, and then face a claim. If your establishment is close to the line, or you hold an exemption notification, our legal consultation team can check your position against the text and the notifications in force for your State or Central sphere.
Key takeaways
- Section 41(1) excludes nine groups from the bonus Chapter, from LIC employees to employees of institutions not established for profit.
- Clauses (g) and (i) work only through a notification by the Central or appropriate Government.
- Section 41(2) applies the Chapter to establishments with twenty or more persons on any day in an accounting year.
- The text leaves some terms open (for example, which "educational institutions" qualify); do not assume.
- The Central Rules add nothing to this section.
Read next
- Section 40: bonus in public sector establishments
- Section 26: eligibility for bonus
- Section 42: Central and State Advisory Boards
- Bonus under the new labour codes: Code on Wages, 2019
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.