Indian Income Tax
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Minimum/Maximum Bonus Payable

Section 10 and 11 of the Payment of Bonus Act, 1965, ascertains the payment of minimum bonus and maximum bonus.

Section 10 – Payment of minimum bonus

The Act states that – Subject to the other provisions of this Act, every employer shall be bound to pay to every employee in respect of the accounting year commencing on any day in the year 1979 and in respect of every subsequent accounting year, a minimum bonus which shall be 8.33% of the salary or wage 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:

Provided that where an employee has not attained fifteen years of age at the beginning of the accounting year, the provision of this section shall have effect in relation to such employee as if for the words “one hundred rupees”, the words “sixty rupees” were substituted.

The Act means that the minimum bonus which an employer is required to pay, even if he suffers losses during the accounting year and even if there is no allocable surplus, is the higher among the following two.

  • 8.33% of the salary or wages during that accounting year,

  • OR
  • Rs. 100 in case of employees above 15 years of age and Rs 60 in case of employees below 15 years of age, at the beginning of the accounting year.

Section 11 – Payment of Maximum Bonus

The Act states that –

  1. Where in respect of any accounting year referred to in Section 10, the allocable surplus exceeds the amount of minimum bonus payable to the employees under that section, the employer shall, in lieu of such minimum bonus, be bound to pay to every employee in respect of that accounting year bonus which shall be an amount in proportion to the salary or wage earned by the employee during the accounting year subject to a maximum of 20% of such salary or wage.
  2. In computing the allocable surplus under this section, the amount set on or the amount set-off under the provisions of Section 15 shall be taken into account in accordance with the provisions of that section. The Act means that if in an accounting year, the allocable surplus, calculated after taking into account the amount ‘set-on’ or the amount ‘set-off’ exceeds the minimum bonus, the employer should pay bonus in proportion to the salary or wages earned by the employee in that accounting year subject to a maximum of 20% of such salary or wages.

For the purpose of the above two Sections, the time limit to pay such bonus needs to be determined. Section 19 of the Act states that – All amounts payable to an employee by way of bonus under this Act shall be paid in cash by the employer. The time limit is –

  • Where there is a dispute regarding payment of bonus , the bonus is payable within a month from the date on which the award becomes enforceable or the settlement comes into operation, in respect of such dispute;
  • In any other case, the bonus is payable within a period of eight months from the close of the accounting year.

Provided that the appropriate Government or authority may, upon an application made to it by the employer and for sufficient reasons, extend the said period of eight months to such further period as it thinks fit but shall not exceed two years.

This means that the bonus should be paid in cash within 8 months from the close of the accounting year or within one month from the date of settlement of an industrial dispute regarding payment of bonus. However if there is sufficient cause extension for the payment of bonus may be applied for by the employer.

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