Section 36 of the Code on Wages, 2019: Set On and Set Off of Allocable Surplus
Section 36 regulates how an establishment carries forward excess allocable surplus, or a deficiency in the amount required for minimum bonus, while calculating bonus under Chapter IV of the Code on Wages, 2019.
- Set on: excess allocable surplus beyond the maximum bonus may be carried forward, subject to the statutory limit.
- Set off: where surplus is absent or insufficient for minimum bonus, the relevant deficiency may be carried forward.
- Carry-forward period: set on and set off can continue up to and including the fourth succeeding accounting year.
- Oldest amount first: the earliest carried-forward set on or set off is taken into account first.
Meaning of "set on" and "set off"
In bonus computation, set on is the statutory mechanism for carrying forward qualifying excess allocable surplus for use in later accounting years. Set off is the corresponding mechanism for carrying forward the minimum amount or deficiency where the available or allocable surplus is insufficient to meet the minimum bonus requirement.
These concepts operate together with Sections 31 and 32, Sections 33 and 34, Section 35 and Section 26 of the Code.
Section 36 - statutory provision explained
Section 36(1): Carry forward of excess allocable surplus - "set on"
Where, for an accounting year, the allocable surplus exceeds the maximum bonus payable under Section 26, the excess is carried forward for set on. The amount carried forward is subject to a ceiling of twenty per cent of the total salary or wages of employees in the establishment for that accounting year. It may be used for bonus in succeeding accounting years up to and including the fourth accounting year, in the prescribed manner.
Section 36(2): Carry forward of deficiency - "set off"
Where there is no available surplus, or the allocable surplus is less than the minimum bonus payable under Section 26, and the carried-forward set-on amount is absent or insufficient to meet the minimum bonus, the minimum amount or deficiency, as applicable, is carried forward for set off. The carry-forward may continue up to and including the fourth accounting year in the prescribed manner.
Section 36(3): Other cases
The principles of set on and set off provided by the rules made by the Central Government apply to other bonus cases that are not covered by sub-section (1) or sub-section (2).
Section 36(4): Earliest accounting year to be adjusted first
Where an amount has been carried forward as set on or set off, the amount relating to the earliest accounting year is taken into account first when bonus for a succeeding accounting year is calculated.
Relationship with Section 26: Minimum and maximum bonus
Section 26 contains the core rules on eligibility for bonus and the minimum and maximum bonus framework. Section 36 becomes relevant because Section 26 expressly requires set on and set off to be considered while computing allocable surplus and bonus. The maximum bonus under Section 26 is twenty per cent of wages, while the statutory minimum is calculated in accordance with Section 26(1), subject to the conditions and wage thresholds applicable under the Code.
How the four-year carry-forward mechanism works
If the allocable surplus for a year is more than what is needed for the statutory maximum bonus, the qualifying excess is not simply ignored. Subject to Section 36(1), it is carried forward as set on. Conversely, where the amount available is insufficient for minimum bonus and there is no adequate set-on balance, the deficiency is carried forward as set off under Section 36(2).
The statutory period is limited: the amount may be carried forward only up to and including the fourth accounting year. Section 36(4) also establishes a chronological rule, requiring the oldest carried-forward amount to be dealt with first.
Practical compliance points
Employers calculating bonus should maintain year-wise records showing allocable surplus, minimum and maximum bonus, set-on balances, set-off deficiencies, utilisation in later years and expiry of amounts after the permitted carry-forward period. The calculation should be aligned with the applicable Central or State rules, as the case may be, and with the other provisions of Chapter IV.
Official legal resources
For the authoritative statutory text and current notifications, refer to the India Code page for the Code on Wages, 2019 and the Ministry of Labour and Employment. The Government announced implementation of the four Labour Codes, including the Code on Wages, with effect from 21 November 2025.
Note: This page is a general legal information resource. For an actual bonus computation, the Code, the applicable notified rules, government notifications and facts of the establishment should be checked together.