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Presented By;
1)Mayur Khatri
The practice of paying bonus in India appears to have originated
during First World War when certain textile mills granted 10% of
wages as war bonus to their workers in 1917.
In certain cases of industrial disputes demand for payment of
bonus was also included. In 1950, the Full Bench of the Labour
Appellate evolved a formula for determination of bonus.
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 India
Every establishment in which twenty or more persons are
employed on any day during an accounting year.
Factory ( As Defined in factories Act)
very other establishment in which 20 or more persons are employed
on any day during any accounting yearc)Public sector(Share capital
held by Govt>40%)
Note : For some establishment POBA will apply even if the number
of employees are below 20 under two conditions,
oMinimum of 10 employees
oNotified in gazette.
All the employees
 Who works for 30 days (or) more.
 Salary less than (or) equal to 10,000.
Note : Working days includes Casual leaves, sick
leaves………….etc.
According to Section 32 of the Act
 General insurance & Life insurance business and the employees
 Seamen as defined in clause (42) of Section 3 of the Merchant
Shipping Act, 1958;
 Employees employed by any department of Central Government or a
State Government or a local authority;
 Employed by The Indian Red Cross Society
 Universities and other educational institutions
 Institutions (including hospitals, chambers of commerce and social
welfare institutions) established not for the purpose of profit
 Employees employed through contractors on building operations
 Employees employed by the Reserve Bank of India
 Employees employed by The Industrial Finance Corporation of
India;
 And other institution mentioned under sec 32
Calculation of available surplus u/s 5.
oGross profit u/s 4 xxx
oLess :Prior profits u/s6 xxx
oAdd :Tax savings(previous accounting year) xxx
Available surplus xxx
According to Sec 19
[All amounts] payable to an employee by way of bonus under this Act
shall be paid in cash by his employer
Allocable Surplus
60% of Available Surplus,
67% in case of foreign companies.
The minimum for majors is RS 100.
The minimum for minors between 14 to 15 is RS 60
The maximum bonus payable is RS 24000 (10000*20%*12months)
The minimum bonus payable is RS 1200 (100*12) (OR) for minors
720(60*12).
Minimum u/s10 = 8.33%
Maximum u/s11 = 20%
Offence
Contraventions of any provisions
Default in complying with Act
Penalty
6 month’s jail and /or Rs 10,000 or both
1) An Bonus be denied to an employee on the condition that on
the day of declaration of Bonus he was not in employment ?
 NO. It violates the provisions of Sec. 8 of the Act.
2) Whether a Probationer is eligible for Bonus ?
 A probationer will be eligible for bonus as there is no exclusion in the
definition of ‘employee’ under the Act.
 Bonus can be forfeited to an employee who has been dismissed
from service on grounds of fraud, theft, misappropriation, or
Damage of any property of the establishment.
 Every employer shall prepare and maintain such registers, records
and other documents in such form and in such manner as may
prescribed.
 The appropriate Government may, by notification on the Official
Gazette, appoint such person as it think fit to be Inspectors for the
purposes of this Act and may define the limits within which they
shall exercise jurisdiction.
The Cabinet in its meeting held on October 1, 2007 has approved the
Amendments to the payment of Bonus Act, 1965, which are as follows:-
i) Amendment to Section 2(13): To raise the eligibility limit for payment
of bonus from the salary or wage of Rs.3500/- to Rs.10,000 per month.
ii) Amendment to section 12: To raise the ceiling for calculation purpose
from the salary or wage of Rs.2500/- to Rs.3500/- per month, and;
iii) Deletion of section 32(vi): To cover the employees employed through
contractors on building operations .
Source: Press Information Bureau,Government of India.
CASE STUDY ON
THE PAYMENT OF BONUS ACT, 1965
Matter
 The appellant company was making two payments of bonus every year one for the
half year ending 30th June and the other for the half year ending 31st December.
The payment was on the basis of profits earned by it and the payment was not a
condition of service and had nothing to do with any custom or festival. When the
Payment of Bonus Act, 1965 came into force.
 Problem Arise from Workmen that Company stop two payment of bonus every
year
Judgment
 Appellant issued a circular that as bonus was payable under law only within a
period of 8 months from the end of the, accounting year Under the Act, bonus for a
particular accounting year will have to be computed in accordance with the
provisions of the Act on the basis of the gross profits determined at the close of the
accounting year.
Binny Limited Vs Their Workmen
Date Of Judgment 15th
February, 1972
Bench Vaidyialingam, C.A Dua
In the Court Supreme Court of India
 Institutions such as hospitals, social welfare institutions and chambers ofcommerce are intended to
be exempted under section 32 (v) (c); Maharashtra Electricity Board v. M.C. Chitale , (1981)
 Overtime allowance does not form part of “wages”; Associated cement Co.Ltd. v. Their
Workmen.
 Branches of an establishment are to be treated as part of the same establishment or the purpose of
computation of bonus. However, where in an accounting year, a separate-balance sheet is
maintained in respect of any branch then such branch shall be treated as a separate establishment;
 Workmen, Somaiya Organnics (India) Ltd. v. Somaiya Organics (India) Ltd., 1981.
 Bonus paid to trainees (not apprentices) is admissible deduction under theIncome-tax Act; Textool
Co Ltd. v. Income-Tax Officer, 1984
 Employees working on part-time basis are eligible for bonus; Arun Mills Ltd. v. Dr. Chandra
Parshad C. Trivedi, 1976.
 In the case of a factory which works seasonally during an accounting year working days in any
accounting year” can only mean those days of the year during which the employee concerned is
actually allowed to work; Sakhkkar Mills  Mazdoor Sangh v. Gwalior Sugar Co. Ltd., 1985
Some other Cases for Understanding Act
Payment of Bonus Act 1965

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Payment of Bonus Act 1965

  • 2. The practice of paying bonus in India appears to have originated during First World War when certain textile mills granted 10% of wages as war bonus to their workers in 1917. In certain cases of industrial disputes demand for payment of bonus was also included. In 1950, the Full Bench of the Labour Appellate evolved a formula for determination of bonus. 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.
  • 3.  It extends to the whole of India Every establishment in which twenty or more persons are employed on any day during an accounting year. Factory ( As Defined in factories Act) very other establishment in which 20 or more persons are employed on any day during any accounting yearc)Public sector(Share capital held by Govt>40%) Note : For some establishment POBA will apply even if the number of employees are below 20 under two conditions, oMinimum of 10 employees oNotified in gazette.
  • 4. All the employees  Who works for 30 days (or) more.  Salary less than (or) equal to 10,000. Note : Working days includes Casual leaves, sick leaves………….etc.
  • 5. According to Section 32 of the Act  General insurance & Life insurance business and the employees  Seamen as defined in clause (42) of Section 3 of the Merchant Shipping Act, 1958;  Employees employed by any department of Central Government or a State Government or a local authority;  Employed by The Indian Red Cross Society  Universities and other educational institutions  Institutions (including hospitals, chambers of commerce and social welfare institutions) established not for the purpose of profit  Employees employed through contractors on building operations  Employees employed by the Reserve Bank of India  Employees employed by The Industrial Finance Corporation of India;  And other institution mentioned under sec 32
  • 6. Calculation of available surplus u/s 5. oGross profit u/s 4 xxx oLess :Prior profits u/s6 xxx oAdd :Tax savings(previous accounting year) xxx Available surplus xxx According to Sec 19 [All amounts] payable to an employee by way of bonus under this Act shall be paid in cash by his employer Allocable Surplus 60% of Available Surplus, 67% in case of foreign companies.
  • 7. The minimum for majors is RS 100. The minimum for minors between 14 to 15 is RS 60 The maximum bonus payable is RS 24000 (10000*20%*12months) The minimum bonus payable is RS 1200 (100*12) (OR) for minors 720(60*12). Minimum u/s10 = 8.33% Maximum u/s11 = 20%
  • 8. Offence Contraventions of any provisions Default in complying with Act Penalty 6 month’s jail and /or Rs 10,000 or both 1) An Bonus be denied to an employee on the condition that on the day of declaration of Bonus he was not in employment ?  NO. It violates the provisions of Sec. 8 of the Act. 2) Whether a Probationer is eligible for Bonus ?  A probationer will be eligible for bonus as there is no exclusion in the definition of ‘employee’ under the Act.
  • 9.  Bonus can be forfeited to an employee who has been dismissed from service on grounds of fraud, theft, misappropriation, or Damage of any property of the establishment.  Every employer shall prepare and maintain such registers, records and other documents in such form and in such manner as may prescribed.  The appropriate Government may, by notification on the Official Gazette, appoint such person as it think fit to be Inspectors for the purposes of this Act and may define the limits within which they shall exercise jurisdiction.
  • 10. The Cabinet in its meeting held on October 1, 2007 has approved the Amendments to the payment of Bonus Act, 1965, which are as follows:- i) Amendment to Section 2(13): To raise the eligibility limit for payment of bonus from the salary or wage of Rs.3500/- to Rs.10,000 per month. ii) Amendment to section 12: To raise the ceiling for calculation purpose from the salary or wage of Rs.2500/- to Rs.3500/- per month, and; iii) Deletion of section 32(vi): To cover the employees employed through contractors on building operations . Source: Press Information Bureau,Government of India.
  • 11. CASE STUDY ON THE PAYMENT OF BONUS ACT, 1965
  • 12. Matter  The appellant company was making two payments of bonus every year one for the half year ending 30th June and the other for the half year ending 31st December. The payment was on the basis of profits earned by it and the payment was not a condition of service and had nothing to do with any custom or festival. When the Payment of Bonus Act, 1965 came into force.  Problem Arise from Workmen that Company stop two payment of bonus every year Judgment  Appellant issued a circular that as bonus was payable under law only within a period of 8 months from the end of the, accounting year Under the Act, bonus for a particular accounting year will have to be computed in accordance with the provisions of the Act on the basis of the gross profits determined at the close of the accounting year. Binny Limited Vs Their Workmen Date Of Judgment 15th February, 1972 Bench Vaidyialingam, C.A Dua In the Court Supreme Court of India
  • 13.  Institutions such as hospitals, social welfare institutions and chambers ofcommerce are intended to be exempted under section 32 (v) (c); Maharashtra Electricity Board v. M.C. Chitale , (1981)  Overtime allowance does not form part of “wages”; Associated cement Co.Ltd. v. Their Workmen.  Branches of an establishment are to be treated as part of the same establishment or the purpose of computation of bonus. However, where in an accounting year, a separate-balance sheet is maintained in respect of any branch then such branch shall be treated as a separate establishment;  Workmen, Somaiya Organnics (India) Ltd. v. Somaiya Organics (India) Ltd., 1981.  Bonus paid to trainees (not apprentices) is admissible deduction under theIncome-tax Act; Textool Co Ltd. v. Income-Tax Officer, 1984  Employees working on part-time basis are eligible for bonus; Arun Mills Ltd. v. Dr. Chandra Parshad C. Trivedi, 1976.  In the case of a factory which works seasonally during an accounting year working days in any accounting year” can only mean those days of the year during which the employee concerned is actually allowed to work; Sakhkkar Mills  Mazdoor Sangh v. Gwalior Sugar Co. Ltd., 1985 Some other Cases for Understanding Act