The Payment of Bonus Act, 1965

Transcription

1 The Payment of Bonus Act, 1965 Particulars Section/ Rule Provisions Punishment Objective - To provide for & regulate the payment of to employees of certain establishment Scope & Coverage Sec 1 Payment of Bonus Act, 1965 extends to whole of India Payment of Bonus Act, 1965 applies to every factory and to every other establishment in which 20 or more persons are employed on any day during an accounting year. The Government may also apply the act on any establishment in which have less than 20 but not less than 10 persons are employed. Once this act applies to a factory or an establishment it will continue to apply to it forever even if no. of employees fall below 20

2 Definitions Sec 2 (1) "accounting year" means- (i) in case of corporate, year ending on the day on which books of accounts are closed (ii) in case of a company, the period in respect of which any profit and loss account of the company laid before it in annual general meeting is made up, whether that period is a year or not (iii) in any other case the year beginning on 1st April (OR) if the accounts of establishment are closed on any other day, then year ending on that day (2) "Allocable Surplus " in relation to employer being a company (excluding banking company) which didn t deduct tax on payment of dividend from profits as per sec 194 of income tax act is 67% of available surplus. For others, 60% of available surplus (3) "direct tax" means (i)the Income-tax Act; (ii) the Super Profits Tax Act, 1963 (14 of 1963): (iii) the Companies (Profits) Surtax Act, 1964 (7 of 1964); (iv) the agricultural income tax law and any other law as prescribed (4) "employee" means any person (other than an apprentice) employed on a salary or wage not exceeding [10000Rs] per month in any industry (5) "employer" includes - i) The owner or occupier of the factory (ii)the person who has ultimate control over the affairs of the establishment (6) "salary or wages " means all remuneration (other than remuneration in respect of overtime work) capable of being expressed in terms of money which is payable by employer to employee + DA but doesn t include other allowances, travel concession, any retirement benefit, commission,, house accommodation or concessional supply of food grains or water etc. However food allowance in lieu of his salary is included in salary

3 Available surplus Calculation of direct tax payable by employer for this act Eligibility for Disqualification for Sec 4, 5 and 6 Sec 7 Sec 8 Sec 9 Gross Profit for the year(as per schedule 1 (for banking company) or schedule 2( for others)) (subtract) Depreciation admissible u/s 32 of income tax act (subtract) development rebate or investment allowance or development allowance which the employer is entitled to deduct from his income under the Income Tax Act (subtract)any direct tax which the employer is liable to pay for the accounting year in respect of his income, profits and gains during that year (subtract) sum specified in 3rd schedule (ADD) 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 there from the amount of which the employer has paid or is liable to pay to his employees in accordance with the provisions of this Act for that year (1)Tax should be calculated at a rate applicable to employee as per income tax act. However the income taxable should not include (i) Previous year losses set off this year(including arrears of Depreciation) (ii) exemption u/s 80J and finance act(10 of 1965) (2) In case of charitable trust exempted u/s 13 then expected income is Taxable income here (3) in case of HUF or individual only income from establishment is Taxable income here (4) no account of any Rebate (except development rebate or investment allowance or development allowance) every employee who has worked for not less than 30 days in that year if employee is dismissed for(a) fraud (b) riotous or violent behaviour while on the premises of the establishment (c) theft, misappropriation or sabotage of any property of the establishment.

4 Minimum Maximum Bonus Calculation of Proportionate Deduction Computation of no. of working days Sec 10 Sec 11 Sec 12 Sec 13 Sec 14 Set off & Set on Sec 15 a minimum which shall be 8.33 per cent of the salary or wages 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 Maximum allowed is 20% of salary or wages in case where monthly income of employee exceeds Rs3500 then shall be calculated assuming his wage is 3500 Where an employee has not worked for all the working days in an accounting year, the minimum of one hundred rupees or, as the case may be, of sixty rupees, if such is higher than 8.33 per cent of his salary or wage of the days he has worked in that accounting year, shall be proportionately reduced An employee shall be deemed to have worked in an establishment in any accounting year also on the days on which,- (a) he has been laid off under an agreement (b) he has been on leave with salary or wages; (c) he has been absent due to temporary disablement caused by accident arising out of and in the course of his employment, and (d) the employee has been on maternity leave with salary or wages, during the accounting year Following is the method for set off and set on (i) in case where allocable surplus exceeds maximum amount of payable to employee than that excess amount is carried forward next year and so on upto and inclusive of 4th accounting year and this may be used for payment of in year where allocable surplus is less than minimum amount payable (ii)in case where allocable surplus is less than minimum amount of payable and there is no sufficient set on than the deficient amount shall be carried forward as set off for succeeding accounting years

5 Provisions with respect to newly set organisation Sec 16 NOTE: in calculating for the succeeding accounting year, the amount of set on or set off carried forward from the earliest accounting year shall first be taken into account Where an establishment is newly set up amount of payable has to be judged with reference to different accounting year 1) For the first five accounting year following the year in which employer starts to trade,provisions of sec 15 i.e set off and set on won't be applicable. Bonus shall be payable only in respect of profit derived in that accounting. NOTE: an employer shall not be deemed to have derived profit unless he has made provision for depreciation as per income tax act or agriculture income tax as the case may be and such loss is totally set off against profit of that year. 2) For the sixth and seventh year, the provision of sec 15 shall apply subject to following modification namelyi) In sixth accounting year Disclaimer: The articles contained in LnCo website, are contributed by the respective resource persons and any opinion mentioned therein is his/their personal opinion. LnCo updates is intended to be circulated among fellow professional and clients of the Firm, to provide general information on a particular subject or subjects and is not an exhaustive treatment of such subject(s). The information provided is not for solicitation of any kind of work and the Firm does not intend to advertise its services or solicit work through Lnco Website. The information is not intended to be relied upon as the sole basis for any decision. Before making any decision or taking any action that might affect your personal finances or business, you should consult a qualified professional adviser. Laxminiwas & Company (Firm) does not endorse any of the content/opinion contained in any of the articles in LnCo website, and shall not be responsible for any loss whatsoever sustained by any person who relies on the same.