Type:Preventive Compliance Frequency: Annual

Action to be taken:
(1) Compute Gross Profits in the format provided (1st Schedule for a Banking Company, else the 2nd Schedule)
(2) Determine the available surplus as per Sections 5,6 & 7 and The Third Schedule
(3) Compute Allocable Surplus as 60% of the Available Surplus plus or minus any amount set on or set off from previous years. Allocable Surplus will be 67% for a company other than a banking company which has not made arrangements to declare and pay dividends out of its profits in India under the Income Tax Act
(4) If the allocable surplus exceeds the amount of the minimum bonus payable to the employees (8.33%), increase the bonus percentage upto a max of 20% until the allocable surplus is exhausted.
(5) The maximum salary for an employee for the purposes of bonus calculations is Rs 2500. Where an employee has not worked for all the working days in an accounting year, his bonus should be proportionately reduced for the number of days worked.



Audit Requirement:
Has the Bonus percentage been calculated in accordance with the Bonus Act ?

Supporting Documents:
Computation of Gross Profit, Available Surplus and Allocable Surplus and percentage of Bonus

Related Documents:
Form A - S 2(4), R 4(a): Computation Of Allocable Surplus   View doc  23.6 Kb
Schedule I - S 4(a) - Computation of Gross Profit In A Banking Company   View htm  14.4 Kb
Form B - S 15, R 4(b): Set On And Set Off of Allocable Surplus   View doc  21.5 Kb
Schedule II - S 4(b): Computation Of Gross Profit in non-Banking Companies   View htm  14.7 Kb
Schedule III - S 6(d): Sums Deductible From Gross Profits   View htm  12.2 Kb
Schedule IV - S 15,16: Set Off, Set On, Allocable Surplus - Working Example   View htm  5.7 Kb

Related Triggers:
Close Of Accounting Year

Related Keywords:
Bonus

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Related Sections:
Payment of Bonus Act, 1965
4:Computation of gross profits:
The gross profits derived by an employer from an establishment in respect of any accounting year shall-
(a) in the case of a banking company, be calculated in the manner specified in the First Schedule ;
(b) in any other case, be calculated in the manner specified in the Second Schedule. Payment of Bonus Act, 1965
5:Computation of available surplus:
The available surplus in respect of any accounting year shall be the gross profits for that year after deducting therefrom the sums referred to in Section 6:

Provided that the available surplus in respect of the accounting year commencing on any day in the year 1968 and in respect of every subsequent accounting year shall be the aggregate of-
(a) the gross profits for that accounting year after deducting therefrom the sums referred to in Section 6 ; and
(b) an amount equal to the difference between-
(i) the direct tax, calculated in accordance with the provisions of Section 7, in respect of an amount equal to the gross profits of the employer for the immediately preceding accounting year ; and
(ii) the direct tax, calculated in accordance with the provisions of Section 7, in respect of an amount equal to the gross profits of the employer for such preceding accounting year after deducting therefrom the amount of bonus which the employer has paid or is liable to pay to his employees in accordance with the provisions of this Act for that year. Payment of Bonus Act, 1965
6:Sums deductible from gross profits:
The following sums shall be deducted from the gross profits as prior charges, namely:-
(a) any amount by way of depreciation admissible in accordance with the provisions of sub-section (1) of Section 32 of the Income-tax Act or in accordance with the provisions of the Agricultural Income-tax Law, as the case may be :

Provided that where an employer has been paying bonus to his employees under a settlement or an award or agreement made before the 29th May, 1965, and subsisting on that date after deducting from the gross profits notional normal depreciation, then, the amount of depreciation to be deducted under this clause shall, at the option of such employer (such option to be exercised once and within one year from that date) continue to be such notional normal depreciation ;

(b) any amount by way of development rebate or investment allowance or development allowance which the employer is entitled to deduct from his income under the Income-tax Act ;
(c) subject to the provisions of Section 7, any direct tax which the employer is liable to pay for the accounting year in respect of his income, profits and gains during the year ;
(d) such further sums as are specified in respect of the employer in the Third Schedule. Payment of Bonus Act, 1965
7:Calculation of direct tax payable by the employer:
Any direct tax payable by the employer for any accounting year shall, subject to the following provisions, be calculated at the rates applicable to the income of the employer for that year, namely :-
(a) in calculating such tax no account shall be taken of-
(i) any loss incurred by the employer in respect of any previous accounting year and carried forward under any law for the time being in force relating to direct taxes ;
(ii) any arrears of depreciation which the employer is entitled to add to the amount of the allowance for depreciation for any following accounting year or years under sub-section (2) of Section 32 of the Income-tax Act ;
(iii) any exemption conferred on the employer under Section 84 of the Income-tax Act or of any deduction to which he is entitled under sub-section (1) of Section 101 of that Act, as in force immediately before the commencement of the Finance Act, 1965 (10 of 1965) ;
(b) where the employer is a religious or a charitable institution to which the provisions of Section 32 do not apply and the whole or any part of its income is exempt from tax under the Income-tax Act, then, with respect to the income so exempted, such institution shall be treated as if it were a company in which the public are substantially interested within the meaning of that Act ;
(c) where the employer is an individual or a Hindu undivided family, the tax payable by such employer under the Income-tax Act shall be calculated on the basis that the income derived by him from the establishment is his only income ;
(d) where the income of any employer includes any profits and gains derived from the export of any goods or merchandise out of India and any rebate on such income is allowed under any law for the time being in force relating to direct taxes, then, no account shall be taken of such rebate ;
(e) no account shall be taken of any rebate (other than development rebate or investment allowance or development allowance) or credit or relief or deduction (not hereinbefore mentioned in this section) in the payment of any direct tax allowed under any law for the time being in force relating to direct taxes or under the relevant annual Finance Act, for the development of any industry. Payment of Bonus Act, 1965
10:Payment of minimum bonus:
Subject to the other provisions of this Act, every employer shall be bound to pay to every employee in respect of the accounting year commencing on any day in the year 1979 and in respect of every subsequent accounting year, a minimum bonus which shall be 8.33 per cent of the salary or wage earned by the employee during the accounting year or one hundred rupees, whichever is higher, whether or not the employer has any allocable surplus in the accounting year :

Provided that where an employee has not completed fifteen years of age at the beginning of the accounting year, the provisions of this section shall have effect in relation to such employee as if for the words "one hundred rupees", the words "sixty rupees" were substituted. Payment of Bonus Act, 1965
11:Payment of maximum bonus:
(1) Where in respect of any accounting year referred to in Section 10, the allocable surplus exceeds the amount of minimum bonus payable to the employees under that section, the employer shall, in lieu of such minimum bonus, be bound to pay to every employee in respect of that accounting year bonus which shall be an amount in proportion to the salary or wage earned by the employee during the accounting year subject to a maximum of twenty per cent of such salary of wage.

(2) In computing the allocable surplus under this section, the amount set on or the amount set off under the provisions of Section 15 shall be taken into account in accordance with the provisions of that section.
Payment of Bonus Act, 1965
12:Calculation of bonus with respect to certain employees:
Where the salary or wage of an employee exceeds seven thousand rupees or the minimum wage for the
scheduled employment, as fixed by the appropriate Government, whichever is higher, the bonus payable to such employee under Section 10 or, as the case may be, under Section 11, shall be calculated as if his salary or wage were ‘‘seven thousand rupees or the minimum wage for the scheduled employment, as fixed by the appropriate Government, whichever is higher. Payment of Bonus Act, 1965
13:Proportionate reduction in bonus in certain cases:
Where an employee has not worked for all the working days in an accounting year, the minimum bonus of one hundred rupees or, as the case may be, of sixty rupees, if such bonus is higher than 8.33 percent of his salary or wage for the days he has worked in that accounting year, shall be proportionately reduced.