Variable compensation · component
Performance and annual bonus
Fully taxable as salary when it is declared and paid, not when it is earned.
How the taxable value is determined
Included in salary income of the year of receipt; employers deduct TDS in that month, which is why a bonus month shows a higher deduction.
Regime availability
- Old regime
- Prescribed value applies
- New regime
- Prescribed value applies
Documentation to keep
Payslip for the bonus month and Form 16 Part B.
Legal basis: Section 17(1), Income-tax Act
Frequently asked questions
Is performance and annual bonus taxable in India?
Fully taxable as salary when it is declared and paid, not when it is earned. Included in salary income of the year of receipt; employers deduct TDS in that month, which is why a bonus month shows a higher deduction.
Does the exemption apply under the new tax regime?
Under the old regime this treatment is not applicable — the value is prescribed, not exempted; under the new regime it is not applicable — the value is prescribed, not exempted. Legal basis: Section 17(1), Income-tax Act.
What records should I keep for performance and annual bonus?
Payslip for the bonus month and Form 16 Part B.
Related tools & guides
Reflects provisions in force for FY 2026-27; verify against the latest government publications (incometax.gov.in). Information, not tax advice.