The payment of Bonus Act- For CA-IPCC

Presented By-:
CA. Mayank Mittal
ACA, PGDBA, B.com
© 2013 Gurukul CA/CS Classes Prepared by CA. Mayank Mittal
.
Payment of Bonus-15th
Lecture
. 1

2
An Act to provide for the payment of bonus to persons
employed in certain establishments on the basis of profits
or on the basis of production or productivity and for
matters connected therewith.
It extends to the whole of IndiaIt extends to the whole of India
Every other establishment inEvery other establishment in
which twenty or more personswhich twenty or more persons
are employed on any day duringare employed on any day during
an accounting year.an accounting year.
.

3
(a) Every factory (as def. in Factories Act), &
(b) Every other establishment in which 20 or more persons (less than 20
but 10 or more if appropriate Govt. notifies)
are employed on any day in the Financial Year
Factory means any establishment which employs minimum 20 persons (without
aid of Power) and 10 (with aid of Power) in any FY.
Once this act is applicable on any Establishment it will remain
applicable on it even though the no of person falls below the
required limit in that FY.
.

.
It simply denotes any place of business where commercial activity is carried
or any services is being rendered
Establishments to include departments, undertakings and branches
Where an establishment consists of different departments or undertakings or has
branches, whether situated in the same place or in different places, all such
departments or undertakings or branches shall be treated as parts of the
same establishment for the purpose of computation of bonus unless
following conditions are satisfied-
Separate Financial Statement is being prepared for that branch AND
Such Branch has never being considered for computation of BONUS.
Condition 1-
Condition 2-
Normally a period of 12 months will constitute a FY starting from April and ending
on March constitute a Accounting year, HOWEVER EXCEPTIONS ARE ALWAYS
THERE.
4

.
oAny person other than Apprentice , engaged for hire or reward.
oIncludes Supervisors, Managers & Administrative staff
oPerson who has worked for minimum of 30 days in an accounting year (SEC 8)
oPerson with a maximum salary of 10,000 per month.
o Whether the Terms of employment are expressed or implied or whether the
person doing work is skilled unskilled etc.
o MOTI MOTI BAAAT KOI BHI INSAAN KUCH BHI KAAM KARE
ORGANISATION MAI PROVIDED ABOVE CONDITION HE IS EIGIBLE FOR
BONUS.
In simple terms we can say that the person who is having the ultimate
control of the Establishment (where persons are working) will be termed as
EMPLOYER, he can be manager, MD, owner, factory manager, legal
representative etc…
5

Of an
An
employee
defined u/s
2(13)
Will be
Eligible for
Bonus
only if
He Has
worked in
the
Establishme
nt for
minimum 30
days
Establi
shment
covere
d u/s
1(3)
Condition u/s 8
6

.
Nothing in this Act shall apply to –
(i) Employees employed by any insurer carrying on general insurance business and the
employees employed by the Life Insurance Corporation of India;
(ii) Seamen
(iii) Employees registered or listed under any scheme made under the Dock Workers
(iv) Employees employed by an establishment engaged in any industry carried on by or under the
authority of any department of the Central Government or a State Government or a Local
authority
v) Employees employed by --
(a) the Indian Red Cross Society or any other institution of a like nature (including its
branches);
(b) universities and other educational institution.
(c) institutions (including hospitals, chambers of commerce and social welfare institutions),
established not for purposes of profit;
vi) Employees employed by the Reserve Bank of India;
VII) Employees ofSFC, NABARD, NHB, IFCI, IDBI, SIDBI,UTI
EXCEPTION (SEC 32) (Learn it)
7

.
It means the reward/remuneration which is paid or payable to an employee in
respect of work done in accordance with the terms of Employment.
Include Exclude
What to Include in Salary
1- Mehangai Bhatta means
Dearness Allowance.
2- Food Allowance
OR
Value of food
BAKI SAB KUCH…
NEED TO LEARN
ONLY WHAT TO
INCLUDE…
REMAING ALL
WILL BE
EXCLUDED.
8

. 9

.
The minimum bonus which an employer is required to pay even if he
suffers losses during the accounting year or there is no allocable
surplus is
8.33 % of the salary during the accounting year,
OR
Rs. 100 in case of employees above 15 years and Rs 60 in case of
employees below 15 years,
whichever is higher
NOTES-
1- Establishment is bound to pay the bonus in case it had incurred loss or is not
having allocable surplus.
2- Salary/Wages for computation of Bonus can be maximum considered as Rs. 3500
per month (Rs. 292 maximum per month).
3- No of working days will include the days of PAID LEAVE, Maternity leave with
wages, Days not worked due to any inability caused during the execution of
work OR being discharged from work.
10

.
Where in respect of any accounting year referred to in section 10, the allocable
surplus exceeds the amount of MINIMUM bonus payable to the employee
COMPANY 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 20 per
cent, of such salary or wage.
However , if such allocable surplus exceeds in such a way that bonus payable will
exceed 20%, then-
1- Such amount will be c/f to next 4 AY and
2- Employee will be paid maximum bonus of 20%..
Similar to Minimum bonus , for the purpose of Bonus Calculation salary
will be restricted to Rs. 3500/- (Rs 700 max).
11

.
a) where there is a dispute regarding payment of bonus pending before any
authority under section 22, within a month from the date on which the award
becomes enforceable or the settlement comes into operation, in
respect of such dispute;
(b) in any other case, within a period of eight months from the close of the
accounting year:
Time limit in the Second case may be Extended provided-
1- Application is made by Employer to Appropriate government.
2- AG is satisfied that there are Reasonable conditions to justify such extension and
3- If satisfied the Extension can be awarded to maximum period of 2 years.
Bonus should be paid in CASH only……not in consideration….
12

.
It applies only if there is AGREEMENT or SETTLEMENT between the
Employer and Employees to pay annual bonus linked with production.
PROVIDED
1- Bonus to be paid Annually
2- Bonus should be linked with Production
3- This Bonus shall be paid instead of bonus paid on Profit
This section Override Entire BONUS Act however it cannot Override
Provisions related to
Minimum
Bonus
Maximum
Bonus
Employee will get minimum 100 Rs or 8.33% of Salary or maximum of
20% only.
13

.
Sec 17- Employer will deduct from bonus amount any customory bonus or
Interim Bonus
Sec 18- If any employee is found Guilty for misconduct and any finacial loss is
being incurred bcoz of it THEN
Company can make the loss GOOD by deducting the amount of loss from its
Bonus amount. However the deduction can be made only in the AY in which
loss was incurred.
Computation of working days
Sec 14 states that the following days are DEEMED WORKING DAYS
• Laid-off
• Leave with salary
• Temporary disablement(during employment)
• Earned maternity leave
Sec 13=where the employee has not worked for all working days the minimum bonus
shall be proportionately reduced
14

Appropriate Government
Sec2(5) states that the Appropriate
Government depends upon the establishment
If it is specified in The Industrial Dispute
Act,1947 that the AG=CG then the AG=CG
If it is not so specified, AG=SG of the state in which the
establishment is situated
38
15

.
Recovery of Bonus Due from an Employer (Sec-21)
Bonus Not
Paid
Application
to AG
Recovery
certificate
Recovery
Condition 1- Application t be made by Employee, legal heir or
any person authorized by Employee AND
Condition 2- Application to be made within 1 Year since Bonus
was due , however time can be extended
If AG is satisfied that Bonus is Due, it will issue Recovery
Certificate
Once Certificate is issued, Bonus will be recovered by the
collector and will be given back to the Applicant..
Agar due hai toh dena hi padega…….
16

.
MISCELLANEOUS CONCEPTS
Any new Establishment is liable to pay Bonus only if there is Surplus ….
And set on/set off will not apply For the first 5 years…
From 6th
to 7th
Year Set on and Set off will be made….
From 8th
year onwards, normal provision will apply…
It is presumed that Financial Accounts of the Company / Corporation is
accurate if it is duly audited by Auditor or CAG respectively…
EXEMPTION U/S 36
Ground
Opinion of
AG
Publication
Content
AG will consider Financial Condition & Other Circumstances
If AG is satisfied that it is in INTEREST of Public, it will grant
Exemption.
Exemption Order shall be Published in Official Gazette
1- Period till which Exemption is Available
2- Condition to Which Exemption is Available.
17

.
ESTABLISHMENT IN PUBLIC SECTOR
Any Establishment which is owned , controlled or managed by
1- Government Company
2- 40% or more Share Capital is held by CG/SG/RBI or corporation hold by
CG/SG/RBI
As per General Rule Bonus Act is not applicable on Establishment in Public Sector..
However it will be applicable if-
1- in any AY it renders any service or sells any goods in Competition to Private Secto
AND
2- the Income from such sale is more than 20% of its Total Gross Income.
Sec 28 states that if the provisions of POBA are contravened or a person fails to compl
with the directions then the penalty=fine of rs.1000 or imprisonment of 6months or both
PENALTY
18

1. Calculate Gross Profit.
2. Deduct Prior Charges from Gross Profit.
3. Compute Available Surplus.
4. Compute allocable Surplus.
5. Finally Calculate Bonus Payable.
19
Net Profit as per P/L A/c
Add-
1- Provisions for Bonus, Depreciation and reserves.
2- Bonus paid to employees in respect of previous AY
3- Gratuity paid or Payable
4- Donations in excess of Admissible amount of Income Taxx
5- Capital Expenditure
6- Losses & Expenditure of any business situated outside India
7- Income Directly credited to reserves.
Less-
1. Profits of any business situated outside India.
2- Capital Receipts & Capital Profit
3- Cash Subsidy Received from the Government
4- Refund of any Excess Direct Tax paid for previous AY
After Deducting 7 items and adding 4 items in Net Profit as per P/L we will get
GROSS PROFIT….
STEP 1-
CALCULATION OF
GROSS PROFIT

20
Step 2-
Available Surplus=
Gross Profit – ( deduct) the following :
Less-
1-Depreciation admissible u/s 32 of the Income tax Act.
2-Development Rebate & Investment Allowance
3- Direct taxes payable for the accounting year (calculated as per Sec.7)
4- Sums specified in the Third Schedule of POBA. (Transfer to Reserves & Certain %
on Equity and Preference Share Capital) DETAIL ON NEXT SLIDE
Add-
1- Tax saved in respect of bonus paid during the preceding AY
After deducting 4 items in GP and adding 1 item we get Available Surplus
Step 3-
Allocable Surplus = 60% of Available Surplus, 67% in case of foreign companies.

21
Sums Deductible under Sch. 3 of POBA
In case of Banking
Company
In case of Non- Banking
Company
Dividends payable on its
preference share capital
7.5% of equity share capital
5% of reserves
Sum to be transferred to
Reserve fund or any reserve
specified by RBI(higher)
5% of reserves
Sum to be transferred to
Reserve fund or any reserve
specified by RBI(higher)
6% to reserves
6% to reserves
Retrenched Employee- Employee jisse naukri se nikal diya ho….
Reinstated Employee- Employee jisse nikalne ke baad wapas rakh liya ho….
A retrenched employee is Eligible for bonus provided he is not disqualified u/s
9…whereas Reinstated employee will only be avialble if BACK WAGES are
paid to him and is not disqualified u/s 9. (in 2nd
case Contradiction between
Munish Bhundari and ICAI Practise Manual..go with ICAI)

22
It is presumed that Financial Accounts of the Company / Corporation is
accurate if it is duly audited by Auditor or CAG respectively..i.e
If there is any Dispute relating to Payment of Bonus or regarding its Applicablity (ya toh
amount ko ya.. Applicability ko lekar ke)
Then if any appeal is filled with Tribunal… and in the course of Proceedings….if
Employer is forced to furnish Financial Statements
Then such Financial Statements will be deemed/presumed to be Accurate if the same is
Audited by Auditor in case of Company and Audited by CAG in case of Corporation…
SAME APPLICABLE FOR BANKING COMPANY….
(Moti Moti baat…Students Your Sign matters a lot….if you have Signed the Financial
Statements then it will be preumed to be Accurate)

23
APPLICABLE ONLY IN CASE WHERE EMPLOYER IS NEITHER A COMPANY NOR
CORPORATION
If there is any Dispute relating to Payment of Bonus or regarding its Applicablity (ya toh
amount ko ya.. Applicability ko lekar ke)
Then if any appeal is filled with Tribunal… and in the course of Proceedings….if
Employer is forced to furnish Financial Statements
Then such Financial Statements will be deemed/presumed to be Accurate if the same is
Audited by Auditor (DULLY QUALIFIED TO BE A AUDITOR UNDER COMPANIES
ACT)
IF HE IS NOT QUALIFIED & TRIBUNAL IS OF OPNION THAT AUDIT IS
NECESSARY
THEN ONLY it can order Employer to gets his accounts Audited within the
Prescribed time. Accounts Audited by AUDITOR this time will be PRESUMED to
be ACCURATESirf itna samaj lijiye ki is case mai 3 condition satisy karni hai
1- Employer is nither a Company nor corporation
2- Auditor is not Qualified to be Auditor u/s 226 &
3- Audit of Accounts is Necessary

Set-on and Set-off of Allocable Surplus
Sec15 provides the rules for set-on and set-off of allocable surplus
Where the allocable surplus is>maximum bonus u/s11,the excess can be set-
on in 4 succeeding years
Where there is:
no allocable surplus or
there are no carried forward amounts or
the allocable surplus is<minimum bonus u/s10
The deficiency can be set-off in 4 succeeding years
Set-on and Set-off are done in the manner provided in schedule four of POBA
. 24

Q 1- Define the Term Employer & employee under Bonus Act?
Q 2 - Avantika is working as a salesman in GAM limited company and is withdrawing
Salary 8500/- on monthly basis. The following payments were made to her in addition to
salary.1- Overtime Allowance 2-Commission on Sales 3- Dearness Allowance 4- Value
of Food
With reference to Bonus Act, State which extra payment listed above will form part if
Salary for Bonus purpose. Would you Answer same if her salary is Rs. 12000/-
Q- 3Whether the followings are eligible for Bonus under the Payment of Bonus Act?
1- Piece Rated Employee. 2- Seasonal Employee 3- Temporary workmen. 4- Employee
suspended on grounds of Misconduct 5- Employee worked for less than 30 days. 6-
Retrenched Employee.7- Apprentice
Q- 4 Mr Z , a temporary employee drawing salary of Rs. 6000/- per month was prevented
by the employer from working in Establishment pending certain Enquiry for 3 months in
FY 2012-13. No Adverse Findings were discovered therefore Mr Z was reinstated in
Establishment. At the time of Bonus disbursement Employer denied the bonus to Mr Z
even though he has worked for remaining period in FY 2012-13. With reference to the
provisions of Bonus Act, state Whether the steps taken by Establishment is correct?
Would you answer same if the salary is 12000/- per month?
. 25

Q. 5 Examine with reference to Payment of Bonus Act, 1965 if an employee drawing a
salary of Rs.5000 and who joined duty on January 20th
, 2008 and who availed maternity
leave for premature delivery from February 8th
, 2008 till April 4, 2008, is eligible for bonus
for the year 2007-08.
Q 6 An employee Mr. A working in an establishment commits fraud during the
accounting year 2004-2005, but continues to work during the subsequent accounting
years 2005-2006 and 2006-2007, and has a clean record during the subsequent years.
On the basis of the fraud committed in 2004-2005, the employee is dismissed from the
service at the end of the accounting year 2006-2007. In this case, thus he lose the
bonus for the accounting year of misconduct i.e. 2004-2005 or all 3 accounting years
ending with 2006-2007? Discuss in the light of the provisions of the Payment of Bonus
Act, 1965.
Q 7 Mr. ‘E’ joined as supervisor on monthly salary of Rs. 3,400 on 1.02.2007 and
resigned from his job on 28.02.2007. The company declared a bonus of 20% to all
eligible employees and paid it on time. Mr. ‘E’ knowing the facts made a claim to HRD,
which in turn rejected the claim. Examine the validity in the light of the provisions of the
Payment of Bonus Act, 1965.
Q 8 In 2009, the Electronics Corporation, a Public Sector establishment under the
Department of Science and Technology, Government of Rajasthan start to sell mobile
sets manufactured by it, in addition to T.V. sets, so as to compete with the private sector
establishments of mobile sets in the market. The income from sale of mobile sets is 30
26

Answer 1- Sec 2(13) of Payment of Bonus Acr’1965 states that Employee means any
person other than an apprentice employed on salary or wage not exceeding R. 10000/-
per month in an industry to do any Skilled, unskilled, manual, supervisory, managerial,
administrative or clerical work for hire or rewards whether the terms of employment are
expressed or employed.
Sec 2(14) of Payment of Bonus Acr’1965 states that Employer includes-
(i)In relation to an establishment which is a factory, the owner or occupier of the factory
or any legal representative or manager of the factory.
(ii) In relation to any other Establishment, the person who has the ultimate control over
the affairs of the establishment.
This is Direct Question…………no need to divided into paragraphs..
. 27

Answer 2-
Sec 2(21) of the Payment of Bonus Act ‘1965 states that Salary & Wages means all
remuneration other than remuneration in respect of Overtime allowance, travelling
concession, commission etc. payable to an employee in respect of an employment
whether Expressed or Implied. It includes dearness allowance and any cash value f food
concession.
In the above case Miss Avantika is working in GM limited at a salary of 8500/- pm,
besides this she is getting Overtime Allowance, Commission, DA and food Concession.
In th light of Above section , it can be concluded that Only DA and food Concession will
be included in Salary for calculation of Bonus. Overtime Allowances and Commission will
be excluded.
Further if Miss Avantika is earning Rs. 12000/ per month then she will not be eligible for
Bonus as sec 2(13) read with Sec 8 which states that employee will be eligible for bonus
only if salary is less than 10000/- per month.
Relevant SectionRelevant Section
Fact of the CaseFact of the Case
ConclusionConclusion
. 28

Answer 3-
With reference to sec 2(13) of the payment of Bonus Act’1965 which defines Employee
as means any person other than an apprentice employed on salary or wage not
exceeding R. 10000/- per month in an industry to do any Skilled, unskilled, manual,
supervisory, managerial, administrative or clerical work for hire or rewards whether the
terms of employment are expressed or employed, will be eligible for Bonus provided
conditions of sec 8 is satisfied.
In the light of above it can be concluded that
Piece Rated Employee. – will be Eligible for Bonus.
Seasonal Employee . – will be Eligible for Bonus.
Temporary workmen. . – will be Eligible for Bonus.
Employee suspended on grounds of Misconduct - will not be eligible for bonus as per
sec 9.
Employee worked for less than 30 days. - will not be eligible for bonus
Retrenched Employee. . – will be Eligible for Bonus.
Apprentice- will not be eligible for bonus as Employee definition excludes Apprentice.
. 29

Answer 6-
Section 9 of the Bonus Act’ 1965 states that an employee shall be disqualified from
receiving bonus under this Act :if he has been dismissed on service and reason was
(a)fraud; or
(b)riotous or violent behavior while on the premises of the establishment; or
(c)theft, misappropriation or sabotage of any property of the establishment.
Further also states that he will be disqualified form Bonus for not only CY but also from
Bonus of any preceding years.
In the given Question Mr A has committed fraud in FY 2004-05 and thereafter had
worked two more years. Further he has been dismissed form service in FY 2006-07 on
the grounds of fraud committed in FY 2004-05.
Based on the above provision and given the circumstances it an be concluded that Mr..
Will not be eligible for Bonus of all the 3 Accounting years.
. 30

Answer 4-
With reference to Sec 8 read with Sec 2(13), which states that every employee is
entitled for bonus provided he has worked for at least 30 days in an organisation. And
salary is less than Rs. 10000/- also he should not be disqualified under grounds stated
inn sec 8 of the act.
Facct of the case----
In the light of above section it can be concluded that if an employee is prevented from
working and subsequently reinstated in service employer’s liability for Bonus swill not be
lost thus, Mr. X will be eligible for Bonus provided the conditions of sec 8 is satisfied.
31

Q21. Skypark Wooden Toys Limited was established in Kolkata in the year
2005 employing 100 workmen. Since then, the company suffered losses, but
minimum bonus was paid in the accounting years of 2006 and 2007. In the
accounting year 2008, the company earned huge profits. After mitigating the
previous losses, the company is having surplus profit and wants to pay bonus to
its workmen. Skypark Wooden Toys Limited wants legal advice on the following
issues:
How much minimum and maximum bonus may be paid to the workmen?
Whether the company may adjust the puja bonus already paid to the workmen
while calculating the amount of bonus payable to workmen for that accounting
year.
Company wants to give wooden toys as bonus instead of cash. Whether the
company can do so?
Advise Skypark Wooden Toys Limited, stating the provisions of the Payment of
Bonus Act, 1965.
. 32

The payment of Bonus Act- For CA-IPCC

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