4 Important Features of Indian Bonus Payment Act – 1965

Every employee should know what is Bonus Payment act 1965, India is developing country and has many industries especially cities like Gurgaon, Noida, Mumbai, New Delhi, Chennai, Indore, Bangalore has more factories with more working power. Bonus is paid to employees from their profit or based on employee’s production to motivate employee financially.  

1)      W hat is the Payment of Bonus Act 1965?

Indian Bonus Payment Act “has been enacted to provide & regulated the payment of bonus to employees in certain specified establishment either on the basis of profit or on the basis of productivity of the establishment”. A reward for good work or share of profit of the unit the employee is working.

2)      Applicability :

Payment of bonus Act, 1965 extends to whole India

It applies to every factory and to every other establishment in which 20 or more persons are employed on any day during an accounting year

And any factory employing 10 or more persons where any processing is carried out with aid of power

Payment of Bonus act is applicable on every employee whether doing any skilled, unskilled, manual, supervisor, administrator, technical or clerical work for hire or reward and the whether the terms of employment are expressed or implied

Other establishments (established for purpose of profit) employing 20 or more persons. This act is not applicable for Government employees, the employee of municipal corporation or municipality, Railway employee, University and employees of educational Institutions, public sector insurance employees of RBI and public sector finical Institutions, Charitable hospitals, social welfare organisations, non profit oriented organizations and defence employees.

3)      Eligibility for employees

Working for minimum 30 days in accounting year

Employees drawing less than 10,000 salary pm

4)      Bonus Calculation

Bonus percentage range from 8.33 to 20

Time limit to release bonus is 8 months from closure of accounting period.

Salary ceiling for bonus is 10,000 but in calculation it will be taken as rupees 3500 or actual whichever is less.

And calculation of bonus by using LTA Formula:

Calculate the gross profit (according to Sec 4 of IT act)

Calculate the available surplus. Equal to gross profit less prior charges allowable as deduction under section 6 plus amount equal to IT on bonus portion calculated as per provision (b) to section 5.

Calculate allocable surplus

Allocable surplus = 60% of available surplus, 67% in case of foreign companies.

Make adjustments for Set on and Set off.