Determination of Bonus
2.1 Determination of bonus
Bonus cannot be
claimed by workers as a matter of right. It is payable on the basis of
computation of Available & Allocable surplus as per specified rules. It
involves the following steps
i.
Compute gross profit (sec. 4)
ii.
Compute Available surplus (sec.5)
iii.
Allocable Surplus
iv.
Set off or set on of allocable surplus.
2.2 Computation
of gross profit (sec. 4)
It is the first
step for determining the bonus. Some items are added and some deducted from net
profit as shown in the Profit and Loss Account after making usual and
necessary provisions.
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Computation of gross profit in case Banking Company
-
Computation of gross profit in case of other company
2.2.1 Computation of gross profits of a Banking Company
It is computed
in accordance with the First Schedule.
A. Items to be
added back to net profit :
1.
Provision for Bonus paid to employees, depreciation,
development rebate reserve and other reserves.
2.
Gratuity paid in excess of provision.
3.
Donations in excess of the amount admissible for income-tax.
4.
Capital expenditure (other than on scientific research) and
capital losses (other than losses on sale of capital assets).
5.
Losses of, or expenditure relating to, any business situated
outside India
6.
Income, profits and gains credited directly to reserve, other
than
a.
Capital receipts and capital profits;
b. Profits
relating to, any business situated outside India
c. Income of
foreign banking companies from investments outside India
7. Bonus paid to employee in
respect of previous accounting years.
B.
Items to be deducted:
1.
Capital receipts and capital profits
2.
Profit receipts relating to any, business situated outside India
3.
Income of foreign banking companies from investments outside
India
4.
Expenditure or losses (if any) debited to reserves, other
than
a.
Capital expenditure and capital losses.
b. Losses of any
business situated outside India
5. In the case of
foreign banking companies proportionate administrative (overhead) expenses of
Head Office allocable to Indian business.
6.
Refund of any excess direct tax paid, excess provision
relating to bonus, depreciation or development rebate, if written back,
7.
Cash subsidy by the Government, corporate body.
2.2.2
Computation of gross profit other than Banking Company
Gross profit
for establishment other than banking company as specified in the Second
Schedule.
A.
Items to be
added back to net profit.
1. Bonus paid to
employees, provision for depreciation, direct tax ( including the provision for
previous accounting years).
2. Development rebate,
investment allowance, development allowance reserve and other reserve.
3. Gratuity paid
in excess of provision.
4. Donations in
excess of the amount admissible for income-tax.
5. Any annuity
due.
6. Capital
expenditure (other than capital expenditure on scientific research) and capital
losses (other than losses on sale of capital assets).
7. Income, profits
and gains credited directly to reserve other
than –
a. Capital
receipts and capital profits;
b. Profits
relating to, any business situated outside India
c. Income of
foreign banking companies from investments outside India
8. Losses or
expenditure of any business situated outside India
9. Provision for any other
reserve, to an extent charged to Profit and Loss Account.
B. Items to be
deducted.
1.
Capital receipts and capital profits
2.
Profits relating to, any business situated outside India
3.
Income of foreign concerns from investments outside India
4.
Expenditure or losses (if any) debited to reserves,
C.
Other than.
a.
Capital expenditure and capital losses
b. Losses of any
business situated outside India
c. In the case of
foreign concerns proportionate administrative (overhead) expenses of Head Office allocable to Indian business.
d. Refund of any
direct tax paid, excess provision relating to bonus, depreciation, or development
rebate, if written back,
e. Cash subsidy,
given by the Government.
2.3 Computation
of available surplus (sec. 5)
Available
surplus is computed from Gross profit after deducting some amount as specified
below:
Sums deductible from gross profit (Sec. 6)
a.
Any amount by way of depreciation admissible in accordance
with the provisions of Sec. 32(1) of the Income-tax Act, 1961 or agricultural
income-tax law
b.
Any amount by way of development rebate or investment
allowance or development allowance.
c.
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
(calculated as per sec. 7).
d.
Any other sum specified in the Third Schedule.
2.4 Deductions
mentioned in the Third Schedule (sec. 6)
To arrive at
the available surplus the following charges are to be deducted from the gross
according to the 5 categories, as below:
A.
Banking Company
B.
Foreign Banking Company
C.
Company other than a Banking company
D.
Corporation,
E.
Co-operative society and
F.
Any other employer
2.4.1 For Banking Company
i. The dividends payable
on its preference share capital.
ii. 7.5% of its
paid-up equity share capital.
iii. 5 per cent of its reserves.
iv. Any sum transferred to a reserve fund
or to any reserves in India
2.4.2 For Foreign Banking Company
i.
Dividends payable to its
preference shareholders.
ii.
7.5 per cent of such amount as
bears the same proportion to its total paid-up equity share capital.
iii.
5 per cent of such amount as bears
the same proportion to its reserves.
iv.
Any sum deposited with RBI not exceeding the
aforesaid amount.
2.4.3 For a company other than Banking Company
(i)
Dividends payable on its preference share capital.
(ii)
8.5 per cent of
its paid-up equity share capital.
(iii)
6 per cent of
its reserves for foreign company, the total deduction were being 8.5 per cent
of the net fixed assets and current assets.
2.4.4 For
Corporation
i.
8.5 per cent of its paid-up capital.
ii. 6 per cent of
its reserves.
2.4.5 For Co-operative Society
i.
8.5 per cent of the capital invested.
ii.
Sum carried forward to reserve fund.
2.4.6
Any other employer
i.
8.5 per cent of the capital
invested in the establishment.
The sums
mentioned in the Third Schedule to be deducted as prior charge from the gross
profits to arrive at the available surplus.
2.5 Calculation of direct tax payable by the employer (Sec.
7)
Direct tax
payable by the employer is to be calculated at the applicable rates.
i.
In calculating such tax no account shall be taken of—
a.
Any loss incurred by the employer
b.
Any arrears of depreciation
c.
Any exemption conferred on the employer under Sec. 84
Income-tax Act.
ii. Profits and
gains derived from the export goods out of India
iii. Any rebate
(other than development rebate, or investment allowance or development
allowance)
or credit or relief or
deduction.
iv.
Where the employer is a religious or a charitable institution to which
the provision 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 Act.
v.
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.
2.6 'Set on’
and 'set off’ of allocable surplus (Sec. 15)
1.
Set on: Where the allocable surplus exceeds the
amount of maximum bonus, then the excess of allocable surplus, subject to a
limit of 20 per cent of the total
salary or wage of the employees, shall be carried forward on and
up to and inclusive of the 4th accounting year.
This excess
amount shall be utilized for the purpose of payment of bonus as prescribed in
the Fourth Schedule
2. Set off: Where there is no allocable surplus or if it falls short in respect of
that year of the amount of minimum bonus payable or there is no amount or
sufficient amount carried forward then, such minimum amount or the deficiency,
as the case may be, shall be carried forward for being set off in the
succeeding year and so on up to the fourth accounting year as provided in the
in the Fourth Schedule.
3. Section 15 provides for
carrying forward of unabsorbed of the allocable surplus upto twenty percent of
the total salary or wages of the employees after paying bonus at the maximum
rate of twenty percent. It is intended to create a reserve fund out of the
surplus of each accounting year which can be drawn on to pay bonus in the
future. If the allocable surplus falls short of minimum bonus percentage the
deficiency will be carried forward to be set off the following years.
2.7 Payment of Bonus
2.7.1 Minimum bonus
a. Every employer
is liable to pay to the employee a minimum amount of Bonus irrespective of any
allocable surplus. Any employee whose age is 15 or more is to be paid minimum
bonus of 8.33% of his salary or wages or Rs.100. (Rs.60 in case of less than 15
years) whichever is higher (Sec. 10). [State
v. Sordar Dalip Singh]
b. Where an employee has not worked for all the
working days in any accounting year, the minimum bonus payable shall be
proportionately reduced (Sec. 13). [Khas
Joyrampur Colliery Co. (Pvt.) Ltd. V. Kailash Srivastave and Superintending
Engineer Vellore
2.7.2 Maximum bonus
Bonus at a rate higher than
the minimum may be paid only when the allocable surplus exceeds the amount of
minimum bonus payable. The maximum bonus
will be limited to 20% of salary or wage. (Sec. 11)
Where the salary or wage of an employee exceeds Rs.3,500 per mensem, the
bonus will be calculated as if his salary or wage were Rs.3,500 per mensem. (Sec. 12)
In calculating the
allocable surplus for the purpose of payment of bonus, the amount of ‘set on’
or ‘set off’ under provision of Sec. 15 shall be taken into account. (Sec. 11)
The amount of money carried
forward from previous years in the ‘set on’ account (under Sec. 15) will be
utilized in paying the higher or maximum bonus even if the allocable surplus of
the accounting year does not justify payment of such higher or maximum bonus.
(Sec. 11)
2.7.3 Bonus on Arrears of Wages
It has been held by Bombay
Where a dismissed workman
has ordered to be reinstated with back wages, it was held that the employer
could not take advantage of his illegal action and deny the workman any of the
benefits that would have accrued to him including the claim for bonus on his
wages because the workman was prevented by the employer to put in the necessary
attendance under the statute and perform his duties to earn bonus.
