In India, payment of bonus is governed by payment of bonus Act, 1965. In this article I have explained all the important issues related to bonus act.
The payment of bonus act applies to the person employed in every factory and establishment employing not less than 20 persons on any day during an accounting year. The establishment covered under the act shall continue to pay bonus even if the number of employees falls below 20 subsequently. I have explained most of the issues in question answer format.
What is Bonus?
Bonus is the extra payment given to employees in addition to their salary. The purpose of bonus is to motivate the employees. From the enactment of Bonus Act, 1965, bonus has become mandatory obligations for all establishments to whom it is applicable. The act has set two limits for bonus payment, one is minimum bonus and other is maximum bonus.
The bonus paid under bonus act is also called statutory bonus since this bonus is paid as per law.
To whom Bonus is applicable?
The payment of bonus act extends to the whole of India. The Provision of this act shall apply to the following factories/ establishments:-
- The factory defined in clause (m) of section 2 of the factories act 1948.
- Every other establishment in which 20 or more persons are employed on any day during an accounting year.
- The act to also apply to public sectors in certain cases. If in any accounting year an establishment in public sector sells any goods produce or manufacture by it or render any services in competition with an establishment in private sector and the income such sale or services or both is not less than 20% of the gross income of the establishment in private sector for that year then the provision of such act shall apply to such establishment in public sector. Otherwise nothing in this act shall apply to employees employed by any establishment in public sector.
The act will not apply to following classes of employees:
- Employees of LIC
- Seamen as defined in clause 42 of section of the merchant shipping act 1958
- Employees registered or listed under any scheme made under the dock workers Act 1948, and employed by the registered or listed employers.
- Employees of any industry controlled by central or state government or a local authority.
- Employees of Indian red cross society or university/education institutions, institutions not for the purpose of profit.
- Employees employed through contractor on building operations
- Employee of RBI
- Employees of IFCI, any financial corporation under section 3 or 3a of the state financial corporation act 1951, deposit insurance corporation, agriculture refinance corporation, UTI, IDBI or any financial institution being any establishment in public sector which central government notifies in official gazette with regard to its capital structure its objects, its extent of financial assistance any other relevant factor.
- Employees of inland water transport establishment operating on routes passing through any other country.
Is there any benefit to new establishments?
For the first 5 accounting year following the accounting year in which the employers sells goods/render services, bonus is payable only in respect of the accounting year, in which profit is made.
Which employee is eligible for Bonus?
An employee is eligible for bonus if satisfies both the conditions mentioned below:
- If he completes 30 days in that year as per section 8.
- An employee drawing Basic Salary and DA of Rs. 21000 or below per month.
- An apprentice is not eligible for bonus.
How bonus is calculated?
The bonus act has provided minimum and maximum bonus to be given by an establishment to the employees.
Section 10 provides that en employer is bound to provide the below mentioned minimum bonus to its employees.
Higher of 8.33% of Basic Salary and DA or Rs.100
Minimum bonus is paid even if the employer has no allocable surplus in the accounting year.
Section 11 says where the allocable surplus exceeds the minimum bonus payable to the employee, the employer would pay maximum bonus instead of minimum bonus. The maximum bonus will be calculated as follows:
The maximum bonus will be calculated on higher of the two:
- 7000 per month,
- Salary of the employee
Here allocable surplus means:
- 67% of the available surplus for a company (other than banking company) not making arrangement for payment of dividend as per section 194 of income tax act 1961.
- In all other cases it 60% of available surplus
Here available surplus is computed as per section 5 and section 6 of Bonus Act.
Most of the establishment pay maximum bonus instead of going into the complex calculation of available and allocable surplus.
What is the time limit for payment of Bonus?
As per section 19, bonus is paid within 8 months from the end of the year.
What are the recent changes in Bonus Act?
The following amendment has been made in Bonus Act recently by the payment of Bonus Amendment Act, 2015.
- Eligibility limit has been increased from Rs. 10,000 to Rs. 21,000
Earlier bonus act was only applicable to employees earning up to Rs. 10,000 per month and lower. This limit has been increase to Rs. 21,000. It will bring more employee under Bonus Act. This amendment is made applicable form retrospective effect from April 1, 2014.
- Limit of maximum bonus increased to 20% of Rs. 7000 per month
Earlier, the maximum bonus limit was 20% of Rs. 3500 per month. Now it is changed to 20% of Rs. 7000 per month. This amendment also made applicable from retrospective effect from 1st April 2014.
How to deal with retrospective effect of Bonus Act?
Increase in limit of maximum of bonus
Earlier the maximum bonus used pay Rs. 700 per month. Now it is to be paid Rs. 1400 from 1st April 2014 onward. You can reduce the Rs. 700 from other allowances or special allowances given to employees and show it as bonus instead of paying extra Rs. 700 to them. Now the bonus of Rs. 700 which you are already paying with the extra Rs. 700 which you have reduced from other allowances will make total of Rs. 1400.
In this way you need not to pay extra Rs. 700 to employees.
Increase in eligibility limit
Earlier the maximum limit for payment of bonus was Rs. 10,000. Now it is increase to Rs. 21000 with effect from 1st April 2014. So an employer has to pay every employee working in the year 2014-15 & 2015-16 within the limit of Rs. 10,000 to Rs. 21,000. Such bonus will be paid as prior period adjustment in the books of accounts.
What the statutory forms & registers to be maintained in Bonus Act?
The various forms/registers with schedules to be maintained in Bonus Act are listed below:
|Name of the form||Description|
|FORM A||Computation of allocable surplus under section 2(4)|
|FORM B||Set on and set off of allocable surplus under section 15|
|FORM C||Bonus paid to employees for the accounting year ending on the 31st march ……|
|FORM D||Annual return- bonus paid to employees for the accounting year ending on the 31st march …...|
|1st Schedule||Computation of Gross Profit in case of banking company|
|2nd Schedule||Compuation of Gross Profit in case of other than banking companies|
|3rd Schedule||Sums Deductible under Gross Profit|
|4th Schedule||Illustration on Set on and Set off of Allocable Surplus|
What is the due date for Bonus return?
Return under the Bonus Act has to be submitted within 30 days after the expiry of time limit specified for payment of bonus, which is 8 months from the close of the financial year.
The bonus return is filed in form D in the labour office in which jurisdiction of the enterprise falls.
For example, enterprises in Noida, Bonus return is filed in sector 3, labour office.
Please comment for any query on Bonus.
Latest posts by CA Harish Negi (see all)
- How to invest in shares online: Stock Market trading Simplified - January 12, 2017
- Basic PF Deduction Rules and EPF, EPS, EDLIS Rates - January 12, 2017
- Payment of Bonus Act: Applicability, Calculation & Amendments - January 1, 2017