BONUS

Bonus refers to the extra lump-sum income, awarded by an organisation to its

employees usually on an annual basis. It may be provided to the employees on
special occassions like festivals, new year and other important celebrations. Some
firms even distribute bonus to its employees as a token for their contribution in the
high performance of the firm. All such gestures by an enterprise help in boosting
the confidence of the employees in their efforts as well as in the organisation.

In India, the payment of bonus by an establishment is governed by the Payment of

Bonus Act,1965. The Act imposes statutory liability upon the employers of every
establishment covered under the Act to pay bonus to their employees. According to
the Act,the term 'employees' means any person employed on a salary or wage not
exceeding certain prescribed amount per month in an industry to do any skilled or
unskilled,manual,supervisory,managerial,administrative,technical or clerical work
for reward.

The Act applies to every factory where 10 or more workers are working and every
other establishment in which 20 or more persons are employed, on any day during
an accounting year,excluding employees covered under Life Insurance Corporation
of India (LIC) ,port and dock workers,universities,etc.

Under the Act,every employee is entitled to be paid by his employer a bonus in an

accounting year subjected to the condition that he/she has worked for not less than
30 working days of that year. However,this bonus shall be payable by employer
only when the employer derives profit from running organization as bonus is
payable out of these profits. Also,wherever the salary or wage of an employee
exceeds a particular mentioned amount(per annum),then the bonus payable to
such employee shall be calculated as if his/her salary or wage was equal to that
particular amount only.

The Act further provides for payment of minimum and maximum bonus and linking
the payment of bonus with the production and productivity. Every employer shall
pay minimum bonus at the rate of 8.33% of the salary or wages earned by an
employee in a year or one hundred rupees,whichever is higher. Here it is not
required that the employer has any allocable surplus in the accounting year.
Whereas,when the allocable surplus exceeds the amount of minimum bonus
payable to the employees,the employer shall in lieu of such minimum bonus,be
bound to pay bonus equivalent to the amount in certain proportion of salary or
wages earned by employees.

Such a benefit in the form of bonus serves as an incentive to the employee to work
harder and contribute his best for the growth of the organisation.
CALCULATION OF BONUS
The method for calculation of annual bonus is as follow:
1. Calculate the gross profit in the manner specified in-
a. First Schedule, in case of a banking company, or
b. Second Schedule, in any other case.
2. Calculate the Available Surplus.
Available Surplus = A+B, where A = Gross Profit – Depreciation admissible u/s
32 of the Income tax Act - Development allowance - Direct taxes payable for the
accounting year (calculated as per Sec.7) – Sums specified in the Third
Schedule.
B = Direct Taxes (calculated as per Sec. 7) in respect of gross profits for the
immediately preceding accounting year – Direct Taxes in respect of such gross
profits as reduced by the amount of bonus, for the immediately preceding
accounting year.
3. Calculate Allocable Surplus
Allocable Surplus = 60% of Available Surplus, 67% in case of foreign companies.
4. Make adjustment for ‘Set-on’ and ‘Set-off’. For calculating the amount of bonus in
respect of an accounting year, allocable surplus is computed after considering
the amount of set on and set offf from the previous years, as illustrated in Fourth
Schedule.
5. The allocable surplus so computed is distributed amongst the employees in
proportion to salary or wages received by them during the relevant accounting
year.
In case of an employee receiving salary or wages above Rs. 2,500 the bonus payable
is to be calculated as if the salary or wages were Rs. 2,500 p.m. only.
 THE PAYMENT OF BONUS RULES, 19751

In exercise of the powers conferred by section 38 of the Payment of Bonus Act, 1965
(31 of 1965), and in super session of the Payment of Bonus Rules, 1965, the Central
Government hereby makes the following rules, namely:-

1. Short title and commencement. – (1) These rules may be called the Payment
of Bonus Rules, 1965.

(2) They shall come into force on the date of their publication in Official Gazette.

2. Definitions. – In these rules -

(a) “form” means a form appended to these rules;

(b) “act” means the Payment of Bonus Act, 1965 (21 of 1965).
(c) “section” means a section of the Act.

3. Authority for granting permission for change of accounting year. – The

prescribed authority for the purposes of the proviso to paragraph (b) of sub-clause (iii)
of clause (1) of section 2 shall be -

(a) in case of an establishment in relation to which the Central Government is

the appropriate Government under the Act, the Chief Labour Commissioner
(Central);
(b) in any other case, the Labour Commissioner of the State in which the
establishment is situated.

4. Maintenance of registers.- Every employer shall prepare and maintain the

following registers, namely:-

(a) a register showing the computation of the allocable surplus referred to in

clause (4) of section 2, in form A:

(b) a register howing the set-on and set-off of the allocable surplus, under
section 15, in form B.

(c) a register showing the details of the amount of bonus due to each of the
employees, the deductions under sections 17 and 18 and the amount
actually disbursed, in Form C.
2
{5. Annual returns. – Every employer shall send a return in Form D to the Inspector
so as to reach him within 30 days after the expiry of the time limit specified in section 19
for payment of bonus.}

1
Vide G.S.R 2367dated 21st August, 1975, published in the Gazette of India, Part-II Sec. 3(i), dated 6th
September, 1975.
2
Ins. By S.O. 251, dated 7th January, 1984 (w.e.f 21-1-1984)
 FORM A
{See rule 4(1)}

Computation of the Allocable surplus under section 2(4)

Name of the establishments Accounting year ending on the …

Sums deducted from gross profit
Gross profit Depreciation under Development rebate Direct taxes Further sums as are specified
For the Section 6(a) or Development section 6(c) under the Third Schedule to
Accounting allowance the Act.
Year (Rs.) Section 6(b)
1 2 3 4 5

Total of sums deducted Available surplus for the accounting Amount of allocable surplus
α ∗
under Column 2,3,4, and 5 Year (Column 1 minus Column 6) 67% ( 60% of column 7)

6 7 8


Section 2(4)(a)

Section 2(4)(b)
 FORM B
{See rule 4(b)}

Set-on and Set-off of Allocable surplus under section 15

Accounting Year Amount allocable Amount payable Amount of set on Total set-on or set-off
as bonus as bonus or set-off carried forward
(in Rs.) (in Rs.) (in Rs.)
_________________________________________________________________________________
1 2 3 4 5
 FORM C
{See rule 4(c)}

Bonus paid to employees for the accounting year ending on the ……………

Name of the establishment……………

No. of working days in the year………………..
S. . Name of the Father’s Whether he has Designation No. of days Total salary Amount of
No. Employee name completed 15 worked in or wage in bonus payable
years of age at the year respect of under section
the beginning of the 10 or section 11
accounting year accounting as the case
year may be
1 2 3 4 5 6 7 8
Deduction Net Amount Date on Signature/
_________________________________________________ amount actually which Thumb
Puja Interim 1[Amount of Deduction on 2[Total sum payable paid paid impression
bonus bonus income-tax account of deducted (column 8 of the
or other or bonus deducted ] financial under minus employee
customary paid loss, if any Columns,9 Column
bonus advance caused by 10,10 A 12)
during misconduct of and 11]
the of the employee
accounting
year
1
9 10 (10 A) 11 12 13 14 15 16

2
Ins by G.S.R 1147 dated 23rd August, 1979 ( w.e.f 8-9-1979)
 1
FORM D
{See rule 5}

Annual Return – Bonus paid to employees for the accounting year ending on the ……….

1. Name of the establishment and its complete postal address:

2. Name of industry:
3. Name of the employer:
4. Total number of employees:
5. Number of employees benefited by bonus payments:

Total amount payable Settlement, if any, reached Percentage of bonus

as bonus under section under section 18(1) of 12(3) declared to be paid
10 or 11 of the Payment of the Industrial Disputes
of Bonus Act, 1965 Act, 1947 with date
as the case may be
1 2 3

Total amount of bonus Date on which Whether bonus Remarks

actually paid payment made has been paid to
all the employees,
if not, reasons
for non-payment

4 5 6 7

Signature of the employer of his agent

1
Ins. by S.O. 251 dated 7th January,1984,(w.e.f. 21.1.1984)