Bonus letter template
Copy the text below and replace everything in square brackets with your company details.
[Company Name]
[Office Address]
[City], [State] [PIN Code]
Date: [Date]
Ref: [Company Code]/HR/BON/[Year]/[Number]
Private and confidential
To
[Employee Name]
[Designation], [Department]
Employee ID: [Employee ID]
Subject: [Performance / Festival / Statutory / Retention] bonus for [Period]
Dear [Employee Name],
We are pleased to inform you that you will receive a [type of bonus] of ₹[Amount] (Rupees [Amount in Words] only) for the period [Period, for example: 1 April 2025 to 31 March 2026].
[For a performance bonus: This bonus reflects your rating of [Rating] in the annual review and the company's performance against its targets for the year.]
[For a festival bonus: This bonus is paid on the occasion of [Festival Name] to all eligible employees who have completed [Number] months of service by [Date].]
[For statutory bonus: This bonus is paid under the Code on Wages at [Percentage] percent of your wages for the accounting year, calculated as per the applicable wage ceiling.]
[For a retention bonus: This bonus is payable on [Date] provided you remain in the company's service on that date and are not serving notice.]
The bonus will be paid with your salary for [Payroll Month] and will appear as a separate line on your payslip. It is subject to income tax deduction as applicable.
[Except for statutory bonus, add: This is a one-time payment for the period mentioned. It does not form part of your CTC and does not create any right to a bonus in future years.]
Thank you for your contribution. We look forward to another good year together.
Yours sincerely,
For [Company Name]
[Signatory Name]
[Signatory Designation]
Acknowledgement
I acknowledge receipt of this letter.
Name: [Employee Name]
Signature: ____________
Date: ____________
What to include
Name the type of bonus
Statutory, festival, performance and retention bonuses carry different rules. Name the type in the subject line so the employee, payroll and an auditor all read the payment the same way.
Statutory bonus is not a reward
Where statutory bonus applies, it is an entitlement calculated under the Code on Wages, not a discretionary gift. Do not add one-time or no-future-right wording to a statutory bonus letter. The bonus calculator helps work out the amount.
Period and payout month
State the period the bonus covers and the payroll month in which it will be paid. Both matter for tax and for employees who leave between the announcement and the payout.
Conditions stated up front
For retention or performance bonuses, write the conditions: service on the payout date, not serving notice, a minimum rating. Conditions added after the letter is issued are hard to defend.
One-time wording for discretionary bonuses
A sentence that a discretionary bonus is one-time and outside CTC stops a goodwill payment from turning into an expected yearly entitlement.
Common mistakes to avoid
- Calling a statutory bonus a discretionary reward or ex gratia payment.
- Announcing a bonus without saying which payroll month it will be paid in.
- Adding a retention condition after the employee has received the letter.
- Including a discretionary bonus in CTC and then not paying it.
- Sending bonus amounts for a whole department in one shared email.
Run it in ZeniaHR
In ZeniaHR, bonus is a payroll input earning, or HR can run a separate bonus run in Direct Payroll that is drafted, recomputed and then finalized like a regular run. Either way, the payslip PDF shows the bonus as its own line, and finalized runs are sealed as read-only. The bonus and wages reports help check payouts. File the acknowledged copy under the employee's documents.
See it on your own data
A 30-minute demo on a video call. We set up your departments, shifts and leave rules and show attendance, leave and payroll running for your team. Free for your first 50 employees.
Book a free demoSee pricingFrequently asked questions
What is the difference between statutory bonus and performance bonus?
Statutory bonus is a legal entitlement for eligible employees, calculated on wages under the Code on Wages. A performance bonus is a discretionary payment the company decides based on individual or company results. A company may pay both, and the letters for each should use different wording.
Is a bonus part of CTC?
It depends on how the company designs pay. Statutory bonus and a fixed annual bonus are often shown in CTC. Discretionary performance and festival bonuses are usually kept outside CTC and described as one-time payments. Whatever the practice, the offer letter, CTC annexure and bonus letter should say the same thing.
Is bonus taxable in India?
Yes. A bonus is treated as part of salary income, so income tax is deducted on it along with the salary of the month in which it is paid. That is why a large bonus can raise the tax deducted in the payout month. The bonus letter should mention that tax will be deducted as applicable.
Does an employee who resigns get a bonus?
For statutory bonus, eligibility is decided by the rules under the Code on Wages for the accounting year, so check those rules before leaving out anyone who has exited. For discretionary and retention bonuses, the conditions written in the bonus letter decide it, such as being in service and not serving notice on the payout date.