Tax on Bonus in India - How much Tax is Deducted on Bonus?

Companies often provide bonuses to their employees to appraise their performance in a financial year. This is because your performance helps in increasing the profitability of the company. However, you need to pay an income tax on the bonus depending on the amount of bonus earned.

Now you may ask why you need to pay tax against your additional income. So, this article will answer your doubts regarding the taxability of bonuses.

When is the Bonus Taxed?

The bonus that you receive from your employer is considered as Income under the head Salary, and tax on such bonus is applicable for the same financial year when your employer declares it. Even if you receive the amount in the next year, you are liable to pay the tax for the financial year it has been declared.  

Let’s assume your employer declares an employee bonus of Rs 25,000 on March 15, 2024. However, you are supposed to receive the bonus amount on April 10, 2024. Your bonus amount will be deemed payable within the financial year 2023-2024 and you need to pay the tax in the same year.

Since a Bonus is considered Income under the head Salary, Employers will calculate the tax on such a bonus, and deduct the TDS. Usually, Form 16 issued by your employer will include such bonus amount along with the normal salary

How do Employers Deduct TDS on Salary, Including Bonus?

Your bonus amount is immediately added to your salary after your employer declares it. Moreover, your employer calculates the TDS on your salary which includes the bonus as well. As a result, the tax deduction rate is likely to increase.

Refer to the chart below for a better interpretation of the tax on bonuses in India under both the new and old regimes:

Final Word

So, now that you know whether a bonus is taxable or not and how the TDS is deducted by the employer on such a bonus, you must know the ways to save and reduce your taxability. Investments in ELSS, health and life insurance, PF, etc., will help reduce the amount of your payable tax if you are opting for the old regime.  If you are opting for the New regime, you can claim the following exemption: Gratuity u/s 10(10), leave encashment 10(10A), Interest on Home loan on let out property, Employer contribution to NPS account 80CCD(2).