A bonus is fully taxable as salary and added to your total income — there is no separate flat bonus tax rate. It is taxed at your applicable slab rate (5% to 30%). Your employer deducts TDS under Section 192 in the month the bonus is paid. Joining, festival, ex-gratia and statutory bonuses are all taxable; a returned joining bonus (clawback) is deductible in the year of return.
Types of Bonus — Tax Treatment
Every common form of employer bonus is taxable under the "Salaries" head. The label does not change the tax — only the treatment of a returned amount differs.
| Bonus Type | Taxable? | Income Head | Notes |
|---|---|---|---|
| Performance / annual bonus | Yes | Salaries | Slab rate |
| Joining / signing bonus | Yes | Salaries | Clawback deductible if returned |
| Retention / stay-on bonus | Yes | Salaries | Taxed in year received |
| Festival bonus (Diwali / Eid) | Yes | Salaries | No exemption |
| Ex-gratia payment | Yes | Salaries | No special treatment |
| Statutory bonus (Bonus Act) | Yes | Salaries | Even legal minimum is taxable |
| Commission to an employee | Yes | Salaries | Non-employees: business income |
| Deferred bonus (paid later) | Yes | Salaries | Taxed in the year received |
There is no ₹5,000 or festival-bonus exemption under income tax. All figures reflect FY 2025-26 (AY 2026-27) under the Income-tax Act 2025.
How a Bonus Is Actually Taxed
A bonus is not taxed on its own. It is simply added to your salary income, and your total income is then taxed at the income-tax slab rates. So the extra tax on a bonus equals the bonus multiplied by your highest (marginal) slab rate — 5%, 10%, 15%, 20%, 25% or 30% — plus 4% cess.
| Total Income (New Regime) | Rate | Marginal Tax on Bonus |
|---|---|---|
| Up to ₹4,00,000 | Nil | Bonus effectively tax-free |
| ₹4L – ₹8L | 5% | ₹5 per ₹100 of bonus |
| ₹8L – ₹12L | 10% | Often nil after 87A rebate |
| ₹12L – ₹16L | 15% | ₹15 per ₹100 of bonus |
| ₹16L – ₹20L | 20% | ₹20 per ₹100 of bonus |
| ₹20L – ₹24L | 25% | ₹25 per ₹100 of bonus |
| Above ₹24L | 30% | ₹30 per ₹100 of bonus |
New regime is the default for FY 2025-26. Standard deduction ₹75,000; Section 87A rebate makes tax nil up to ₹12,00,000 taxable income (about ₹12.75L salary).
A bonus is taxed at your top slab, not your average rate — so a ₹3L bonus on top of a ₹15L salary is taxed at 30%, even though your overall effective rate is lower. Nothing is wrong; the bonus just sits in your highest slab. Use the calculator below to see the real figure.
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Your employer deducts TDS on salary under Section 192 at the average rate on your estimated annual pay. When a bonus is paid, the employer re-computes your full-year salary including the bonus, recalculates the tax, and deducts the extra TDS in that month — so the bonus month shows a bigger deduction.
- TDS on bonus is not a flat 10% or 30% — it is the average rate on your full-year salary including the bonus.
- If the employer under-projects your bonus, TDS may fall short — pay advance tax by 15 March to avoid interest.
- Check that the bonus and its TDS appear in your Form 26AS and AIS before filing.
Tax on ₹3L Bonus — Two Salary Levels
Salary ₹12L + bonus ₹3L (new regime)
Salary ₹22L + bonus ₹3L (new regime)
Same ₹3L bonus, very different tax — because the first taxpayer's bonus sits in the 15% slab and the second's sits in the 30% slab. Figures are indicative; use the calculator for your exact numbers.
If TDS on your bonus is not enough and your net tax payable exceeds ₹10,000, interest under Sections 234B/234C applies. Deposit the shortfall as advance tax by 15 March, or the balance by ITR filing, to keep interest to a minimum.
Legal Ways to Reduce Tax on a Bonus
You cannot exempt a bonus, but you can lower the tax around it. Which levers work depends on whether you are on the new regime (default) or the old regime.
Works in the new regime too
- Employer NPS contribution u/s 80CCD(2) — up to 14% of salary, deductible
- ₹75,000 standard deduction on total salary including bonus
- Time a negotiable bonus into a lower-income year
- Pay advance tax to avoid 234B/234C interest
If you repay a joining/signing bonus because you left before the bond period, the returned amount is deductible from your salary income in the year of return — you do not lose the tax on money you gave back. Keep the repayment proof and reflect it in your ITR.
ESOPs are different from a cash bonus: the perquisite value is taxed as salary at exercise, and any later gain on sale is capital gains, not salary.
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