Payment of Bonus Act Checklist

The Act applies to every factory and every other establishment employing 20 or more persons on any day during the accounting year. Once applicable, it continues to apply even if the number of employees falls below 20. Government establishments and certain industries notified by the government are exempt.

Every employee drawing wages up to INR 21,000 per month is eligible for bonus, provided they have worked for at least 30 working days in the accounting year. 'Employee' includes any person (other than an apprentice) employed on a salary or wage basis.

Under Section 12, if an employee's salary exceeds INR 7,000 per month (or the minimum wage for the scheduled employment, whichever is higher), bonus is calculated as if the salary is INR 7,000 or the minimum wage. This is the wage ceiling for the purpose of bonus computation, distinct from the eligibility ceiling of INR 21,000.

An employee is disqualified from receiving bonus under Section 9 only if they are dismissed from service for fraud, riotous or violent behavior in or about the premises of the establishment, or theft, misappropriation, or sabotage of property of the establishment.

Compute the gross profit of the establishment under Section 4 (using the First Schedule for companies and Second Schedule for other establishments). From gross profit, deduct depreciation, development rebate, direct taxes, and prior year set-on/set-off. The allocable surplus is 67% of the available surplus for companies and 60% for others.

Under Section 10, the minimum bonus payable is 8.33% of the wages earned during the accounting year, or INR 100 (whichever is higher), even if the employer has no allocable surplus or has incurred a loss. This is a statutory obligation that cannot be waived.

Under Section 11, the maximum bonus (including the minimum bonus) payable in any accounting year is 20% of the wages earned during that year. Any allocable surplus beyond what is needed for 20% bonus is carried forward as set-on.

Where the allocable surplus exceeds the maximum bonus (20%), the excess is carried forward as 'set-on' to be applied in the next 4 years. Where the allocable surplus falls short of the minimum bonus (8.33%), the shortfall is 'set-off' against surplus in the next 4 years. Maintain the set-on/set-off account in Form D.

Prepare the computation of bonus in Form A (gross profit), Form B (available surplus), and Form C (set-on/set-off). These forms are prescribed under the Payment of Bonus Rules, 1975 and must be maintained for inspection.

Under Section 19, bonus must be paid within 8 months from the close of the accounting year. For a company with an accounting year ending 31 March, the bonus must be paid by 30 November. An extension of up to 2 years may be granted by the appropriate government in certain cases.

Bonus is taxable as salary income. Deduct TDS under Section 192 of the Income Tax Act at the applicable rate when paying bonus. Include the bonus in the employee's Form 16 and report it in the quarterly TDS return.

Employees who have worked for at least 30 days during the accounting year are entitled to bonus proportionate to the number of days worked. Calculate the proportionate amount based on the wages earned during the actual period of employment.

Under Section 14, days of authorised leave with wages and layoff days are treated as days worked for bonus computation. Only unauthorised absence and days of strike (not arising from a legal dispute) should be excluded from the calculation.

Under Rule 4 of the Payment of Bonus Rules, 1975, maintain a register of bonus paid (Form D) showing employee name, wages, bonus due, bonus paid, and the date of payment. This register must be preserved for at least 8 years.

Submit the annual return of bonus paid in Form D to the Inspector within 30 days from the date of payment. The return must be accompanied by the computation sheets in Forms A, B, and C. File the return even if minimum bonus is paid.

Issue a written statement to each employee showing the bonus amount, the accounting year, calculation basis, and deductions (if any). This ensures transparency and helps employees verify the amount against their payslips.

Failure to pay bonus within the prescribed time or contravention of any provision of the Act is punishable with imprisonment up to 6 months, or a fine up to INR 1,000, or both under Section 28. Maintain compliance to avoid prosecution.