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Pradnya

Page 1 PAYMENT OF BONUS ACT

11/8/2011

Important Definition:  Available Surplus  Allocable Surplus  Employee  Accounting year  Salary/ Wage What is the Object of the Payment of Bonus Act, 1965? The object of the Act is to maintain peace and harmony between labour and capital by allowing the employees to share the prosperity of the establishment reflected by the profits earned by the contributions made by capital, management and labour. To which establishments is the Act applicable? The Act is applicable to: a. (a) every factory b. (b) every other establishment employing 20 or more persons. The Government can, however, apply the Act to any establishment employing less that 20 but not less than 10 persons. An establishment to which the Act applies shall continue to be governed by the Act irrespective of any fall in the number of person employed therein. {Section 1} Are the establishments in public sector covered by the Act? According to sub-section (2) of Section 20, save as otherwise provided in sub-section (1), nothing in the Act shall apply to the employees employed by any establishment in public sector. By the said subsection (1) the provisions of the Act are made applicable in relation to an establishment in public sector which sells any goods produced or manufactured by it or renders any services in competition with an establishment in private sector and earns income from such sale or services or both an quantified in the said sub-section.

How to Calculate Amount that is payable as Bonus.

Created by Prof. LETS SEE IN DETAIL THE CALCULATION OF THE AMOUNT THAT IS PAYBALE AS BONUS: I.which is given under Section 6 of the Act. Pradnya Page 2 11/8/2011  First Step: Calculate “Gross profit” -----. 1.which is calculated as per Schedule I (in cases of banking company) or Schedule II (in any other cases) of the Act.  Then we calculate an amount as per Sec 7 called “Available Surplus”  Of this 67% of allocable surplus in case of Company other than Banking Company  And 60% of allocable surplus in any other case. Available Surplus: (Sec 5) . }}}} entitled to deduct }}}} from his income under Income Tax Act II. (Sec 4)  Second Step: then from this “Gross profit” sums are deductable----that amount is known as “Deductions from Gross profits” ----. & Not depreciation allowed by the income tax officer in making assessment on the employer }}} which the employer Any amount by way of ---- Development rebate is  Investment allowances  Or Development allowances 2. Explanation of Sec 6 is as follows: Is depreciation admissible in accordance with section 32 of Income tax Act/ Agriculture Income Tax.

(as per sec 7i. And (ii) Amount = to gross employer of the employer for preceding accounting yr for the immediately after deducting there from the preceding year.Created by Prof. Direct Tax) amount equal to the gross profit minus amount equal profit of the Section 7: Calculation of Direct Tax payable by the employer. (Direct tax: The Direct tax is the tax which is charged on the income or profits of the person who pays it rather than on goods or service) Any Direct Tax ------- accounting year Employer has to pay for the .e. amount of bonus which (as per sec 7i.e. Direct Tax) employer has paid or is liable to pay to his employee in provision of this Act for that yr. Pradnya Page 3 11/8/2011 (i) The gross profit for that Accounting year after deduction u/s 6. III.

1965.Created by Prof.  It has to be 67% of such available surplus.  Any arrears of depreciation -------- employer is entitled to add to the amount of allowance for depreciation for the following accounting year u/s 32 of the Income Tax Act. ii. Pradnya Page 4 11/8/2011 the  What If employer is HUF (Hindu Undivided Family) direct tax payable by such employer shall be calculated on the basis that income derived by him from the establishment is his only income.  Any exemption u/s 84 of the Income Tax Act or  Any deduction u/s 101 (1) of The Finance Act. In case of Company (other than Banking Company)--- the employer which has not made arrangements as prescribed under the Income Tax Act for the declaration and payment within India of the Dividends payable out of its profit as per section 194 of the Act. What is Allocable Surplus? Sec 2 (4) defines: i.  If employer is religious / charitable trust in this case where the section 32 of the Income Tax Act does not apply or whole or any part of the income is exempt from tax under the Income Tax Act  then the calculation of direct tax is done as if the religious trust or charitable trust with respect to the exempted income is a company and in which public is substantially interested. What is ‘Set off’ and ‘Set on’ of Allocable Surplus? . But while calculating the Direct tax certain things are not considered which are as follows:  Any loss which respect to any previous accounting year -- which has been carried forward -- in relation to the Direct tax. IV. In any other cases it has to be 60 % of the available surplus.

Where. A percentage of the available surplus calculated in accordance with the provisions of sub-section (4) of section 2 is called "allocable surplus". 2) Where there is no Allocable Surplus or allocable surplus falls short of Minimum Bonus that has to be payable ------ thus there is no amount that can be carried forward to the succeeding accounting year ------- thus it is called as ‘SETOFF’ of Allocable Surplus or ‘‘carried forward SETOFF in the succeeding year including the 4th accounting year’’. Examples are given in the Schedule IV of the Act What is the meaning of "available surplus" and "allocable surplus" and what is the connection between allocable surplus and bonus? Bonus payable under the Act is linked with profits. the employer derives profit in any of the first five year. ------ which is carried forward to the succeeding accounting year including the 4th accounting year --- is called ‘SETON’ of Allocable Surplus or ‘’carried forward for being SETON in the succeeding accounting year’’. he . {Subsection 2(4). the employer must pay to every employee in respect of that year bonus in proportion to the salary or wage earned by the employee during the year subject to a maximum of twenty percent of such salary or wage. The balance is called "available surplus".Created by Prof. Pradnya Page 5 11/8/2011 1) Where the Allocable Surplus exceeds the amount of Maximum Bonus that has to be payable --- the excess amount shall be subject to 20% of total salary or wage in that accounting year. in respect of any year the allocable surplus exceeds the amount of minimum bonus payable to the employees. however. 6 & 11} Are the newly set up establishments exempted from paying bonus to their employees? The newly set up establishment is exempted from paying bonus to its employees in the first five years following the year in which the employer sells the goods produced or manufactured by him. Then from "gross profits" so calculated he has to deduct the sums referred to in section 6 as prior charges. 5. If. The employer has to calculate "gross profits" of his establishment in the manner specified in section 4. 4.

The provisions of set on and set off are not applicable in such cases.100/. but not exceeding 10000. 3500. he is entitled to get bonus on his entire salary or wage. {Section 32} 2) Disqualification for bonus: (Sec 9) Employee disqualified to be paid bonus if commits:  Fraud  Riots or violent behavior in the premises of establishment  Theft.00 per month is not entitled to get bonus.  But employee should have worked in the establishment for not less than 30 working days of that year Is an employee entitled to get bonus on the basis of his entire salary or wage? If an employee is drawing a salary or wage not exceeding Rs. Pradnya Page 6 11/8/2011 has to pay bonus for that year. {Section 12} Are there any categories of employees who are excluded from the application of the Act? The employees of Life Insurance Corporation of India. An employee getting a salary or wage exceeding Rs. misappropriation or sabotage of any ppty of the establishment. 60/- .00 per month.00 per month.33 % of the salary or wage earned by the employee during accounting year. Reserve Bank of India. or  Adult---Rs. {Section 16} Payment of Bonus: 1) Eligibility for bonus: (sec 8)  Every employee is entitled to be paid bonus. the bonus payable to him is to be calculated as if his salary or wage were Rs.00 per month.and in case of below 15 yrs ---. 3500. 3500. If an employee is getting a salary or wage exceeding Rs. 10000. Central Government and State Government industrial establishments and Universities and other educational institutions are some of the excluded categories. Unit Trust of India.Rs. Minimum Bonus: (Sec 10)  8.00 per month.Created by Prof.

Pradnya Which ever is higher is paid.4.  While calculating allocable surplus (as referred to page no. Maximum Bonus: (Sec 11)  When allocable surplus exceeds the amount of minimum bonus ------ then employer shall pay the bonus (maximum) ------ 20% of the salary or wage earned by the employee during that accounting year. then the time period is of 8 months which may be extended but not more than 2 years by the Appropriate Govt. In case of dispute due to the non payment of the bonus ----- pending before the Court then -------- within 1 month from the date of award employer should pay. What is the principle behind fixing a minimum and maximum limit for payment of bonus? The principle behind fixing a minimum and maximum limit for payment of bonus is that the rate of bonus should not fluctuate widely from year to year. and employee entitled to receive only balance.Created by Prof. In any other disputes and matter pending before the court------- the payment of bonus . Page 7 11/8/2011  Even though the employer has suffered loss the employer is entitled to pay the minimum bonus to the employees.  If employer has paid any puja bonus or customary bonus Or Has paid half payment of the bonus then --------- the employer can deduct the amount so paid. What is the meaning of customary bonus? . Deduction of Amount from the Bonus:  If the employee is found of any misconduct or has caused any financial loss to the employer ---------- employer can deduct the amount from the Bonus amount.) the Set off and Set on are taken into account.

{Section 28} . then Appropriate Government shall issue a certificate to the Collector to recover the money as land arrears.e. {Subsection 31A & 34} Non payment of bonus by the employer under the settlement or award Then:  the employee himself  or any other person authorized by the employee in writing  his assignee or his heirs in case of death make application to the Appropriate govt within 1 mnth from the date of payment is due. {Subsection 22 & 39} What are the offences under the Act and what is the punishment for them? If any person contravenes any provision of the Act or any rule made thereunder. he would be punished with imprisonment upto 6 months. Is it open to employees and employers to agree for grant of bonus under a formula different from that under the Act? Employees can enter into an agreement or a settlement with their employer for granting them bonus under a formula different from that under the Act. bonus linked with production or productivity. Pradnya Page 8 11/8/2011 Customary bonus is bonus which is being paid by way of tradition or custom at a uniform rate over a number of years and which has no link with profit. How to raise a dispute about bonus payable under the Act? A dispute about bonus payable under the Act will have to be raised by the employees concerned in accordance with the provisions of the Industrial Disputes Act. as is applicable to them. 1947.00 or with both.Created by Prof. or any corresponding State law. or with fine upto Rs. i. but subject to the provisions of the Act in respect of payment of minimum and maximum bonus. or fails to comply with any direction given to him. 1000. as such a dispute is deemed to be an industrial dispute within the meaning of such laws.

Discuss the disqualification for payment of bonus. In exam write full answers. Discuss the eligibility for getting payment of bonus. 4. Discuss the scope and object of Payment of Bonus Act? 3. Pradnya Page 9 11/8/2011 Important Questions: 1. I hope this notes would be helpful to all my readers. Do not publish (not even online)/ sell/ hire the above said notes without the permission of the author. What is allocable surplus? How does it differ from the Available surplus? 2. . This is reference notes.Created by Prof.