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INDIAN BONUS ACT – 1965INDIAN BONUS ACT – 1965

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Bonus - HistoryBonus - History

The practice of paying bonus in India appears to The practice of paying bonus in India appears to have originated during First World War when certain have originated during First World War when certain textile mills granted 10% of wages as war bonus to their textile mills granted 10% of wages as war bonus to their workers in 1917. workers in 1917.

In certain cases of industrial disputes demand for In certain cases of industrial disputes demand for payment of bonus was also included. In 1950, the Full payment of bonus was also included. In 1950, the Full Bench of the Labour Appellate evolved a formula for Bench of the Labour Appellate evolved a formula for determination of bonus. determination of bonus.

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IntroductionIntroductionAn Act to provide for the payment of bonus to persons An Act to provide for the payment of bonus to persons employed in certain establishments on the basis of profits employed in certain establishments on the basis of profits or on the basis of production or productivity and for or on the basis of production or productivity and for matters connected therewith.matters connected therewith.

It extends to the whole of India It extends to the whole of India Every other establishment in Every other establishment in which twenty or more persons which twenty or more persons are employed on any day during are employed on any day during an accounting year.an accounting year.

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Bonus - ApplicabilityBonus - Applicability (a) (a)  Every factory (as def. in Factories Act), & (b) Every other Every factory (as def. in Factories Act), & (b) Every other

establishment in which 20 or more persons (less than 20 but 10 or establishment in which 20 or more persons (less than 20 but 10 or more if appropriate Govt. notifies) are employed on any day subject more if appropriate Govt. notifies) are employed on any day subject to certain exemptions.to certain exemptions.

(b) Bonus to be paid within eight months from the expiry of the (b) Bonus to be paid within eight months from the expiry of the accounting year.accounting year.

Establishments to include departments, undertakings and Establishments to include departments, undertakings and branchesbranches

Where an establishment consists of different departments or Where an establishment consists of different departments or undertakings or has branches, whether situated in the same place undertakings or has branches, whether situated in the same place or in different places, all such departments or undertakings or or in different places, all such departments or undertakings or branches shall be treated as parts of the same establishment for the branches shall be treated as parts of the same establishment for the purpose of computation of bonus purpose of computation of bonus

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Bonus – Bonus – EligibilityEligibility

Every employee shall be Every employee shall be

entitled to be paid by his entitled to be paid by his employer in an employer in an accounting year, bonus, accounting year, bonus, in accordance with the in accordance with the provisions of this Act, provisions of this Act, provided he has worked provided he has worked in the establishment for in the establishment for not less than thirty not less than thirty working days in that working days in that year.year.

Disqualification Disqualification for bonusfor bonus

An employee shall be An employee shall be disqualified from receiving disqualified from receiving bonus under this Act :-bonus under this Act :-

(a) fraud; or(a) fraud; or(b) riotous or violent (b) riotous or violent behavior while on the behavior while on the premises of the premises of the establishment; orestablishment; or(c) theft, misappropriation (c) theft, misappropriation or sabotage of any or sabotage of any property of the property of the establishmentestablishment

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Computation for Number Computation for Number of Working Daysof Working Days

An employee shall be deemed to have worked in an An employee shall be deemed to have worked in an establishment in any accounting year also on the days on establishment in any accounting year also on the days on which,-which,-

        (a) he has been laid off under an agreement or as permitted (a) he has been laid off under an agreement or as permitted by standing orders under the Industrial Employment (Standing by standing orders under the Industrial Employment (Standing Orders) Act, 1946, or under the Industrial Disputes Act, 1947, or Orders) Act, 1946, or under the Industrial Disputes Act, 1947, or under any other law applicable to the establishment;under any other law applicable to the establishment;

(b) he has been on leave with salary or wages;(b) he has been on leave with salary or wages; (c) he has been absent due to temporary disablement caused by (c) he has been absent due to temporary disablement caused by

accident arising out of and in the course of his employment, andaccident arising out of and in the course of his employment, and (d) the employee has been on maternity leave with salary or (d) the employee has been on maternity leave with salary or

wages, during the accounting yearwages, during the accounting year

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Payment of minimum & Payment of minimum & Maximum bonus Maximum bonus

A minimum bonus which shall be 8.33 per cent of the A minimum bonus which shall be 8.33 per cent of the salary or wage earned by the employee during the salary or wage earned by the employee during the accounting year.accounting year.

Where in respect of any accounting year referred to in Where in respect of any accounting year referred to in section 10, the allocable surplus exceeds the amount of section 10, the allocable surplus exceeds the amount of maximum bonus payable to the employees. be bound to maximum bonus payable to the employees. be bound to pay to every employee in respect of that accounting; year pay to every employee in respect of that accounting; year bonus which shall be an amount in proportion to the salary bonus which shall be an amount in proportion to the salary or wage earned by the employee during the accounting or wage earned by the employee during the accounting year subject to a maximum of 20 per cent, of such salary year subject to a maximum of 20 per cent, of such salary or wage.or wage.

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CALCULATION OF BONUSCALCULATION OF BONUSThe method for calculation The method for calculation

of annual bonus is as of annual bonus is as follows:follows:

Calculate the Available Calculate the Available Surplus. Surplus.

Available Surplus = Available Surplus = Gross Profit – ( deduct) Gross Profit – ( deduct)

the following :the following : Depreciation admissible Depreciation admissible

u/s 32 of the Income u/s 32 of the Income tax Act. tax Act.

Development Development allowance allowance

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Available Surplus (Deductions)Available Surplus (Deductions)

Direct taxes payable for the accounting year (calculated as Direct taxes payable for the accounting year (calculated as per Sec.7) – Sums specified in the Third Schedule.per Sec.7) – Sums specified in the Third Schedule.

Direct Taxes (calculated as per Sec. 7) in respect of gross Direct Taxes (calculated as per Sec. 7) in respect of gross profits for the immediately preceding accounting year.profits for the immediately preceding accounting year.

Allocable Surplus = 60% of Available Surplus, 67% in case Allocable Surplus = 60% of Available Surplus, 67% in case of foreign companies.of foreign companies.

Make adjustment for ‘Set-on’ and ‘Set-off’. For calculating Make adjustment for ‘Set-on’ and ‘Set-off’. For calculating the amount of bonus in respect of an accounting year, the amount of bonus in respect of an accounting year, allocable surplus is computed after considering the amount allocable surplus is computed after considering the amount of set on and set off from the previous yearsof set on and set off from the previous years

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Set On & Set OffSet On & Set Off

Where in any accounting year any amount has been carried Where in any accounting year any amount has been carried forward and set on or set off under this section, then, in forward and set on or set off under this section, then, in calculating bonus for the succeeding accounting year, the calculating bonus for the succeeding accounting year, the amount of set on or set off carried forward from the earliest amount of set on or set off carried forward from the earliest accounting year shall first be taken into account.accounting year shall first be taken into account.

The allocable surplus so computed is distributed amongst the The allocable surplus so computed is distributed amongst the employees in proportion to salary or wages received by them employees in proportion to salary or wages received by them during the relevant accounting year.during the relevant accounting year.

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Time-limit for payment of bonus Time-limit for payment of bonus

(a) where there is a dispute (a) where there is a dispute regarding payment of bonus regarding payment of bonus pending before any authority pending before any authority under section 22, within a month under section 22, within a month from the date on which the award from the date on which the award becomes enforceable or the becomes enforceable or the settlement comes into operation, settlement comes into operation, in respect of such dispute;in respect of such dispute;

(b)(b) in any other case, within a in any other case, within a period of eight months from the period of eight months from the close of the accounting year:close of the accounting year:

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Recovery of Bonus Due from an Recovery of Bonus Due from an Employer (Sec-22)Employer (Sec-22)

Where any money is due to an employee by way of Where any money is due to an employee by way of bonus from his employer under a settlement or an award bonus from his employer under a settlement or an award or agreement, the employee himself or any other person or agreement, the employee himself or any other person authorized by him in writing in this behalf, or in the case authorized by him in writing in this behalf, or in the case of the death of the employee, his assignee or heirs may, of the death of the employee, his assignee or heirs may, without prejudice to any other mode of recovery, make without prejudice to any other mode of recovery, make an application to the appropriate Government or such an application to the appropriate Government or such authority as the appropriate Government may specify in authority as the appropriate Government may specify in this behalf is satisfied that any money is so due, it shall this behalf is satisfied that any money is so due, it shall issue a certificate for that amount to the Collector who issue a certificate for that amount to the Collector who shall proceed to recover the same in particular shall proceed to recover the same in particular employee. employee.

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RIGHTS OF RIGHTS OF EMPLOYEESEMPLOYEES

Right to claim bonus payable Right to claim bonus payable under the Act and to make an under the Act and to make an application to the Government, application to the Government, for the recovery of bonus due and for the recovery of bonus due and unpaid, within one year of its unpaid, within one year of its becoming due.becoming due.

Right to refer any dispute to the Right to refer any dispute to the Labour Court/Tribunal.Labour Court/Tribunal.

Employees, to whom the Employees, to whom the Payment of Bonus Act does not Payment of Bonus Act does not apply, cannot raise a dispute apply, cannot raise a dispute regarding bonus under the regarding bonus under the Industrial Disputes Act.Industrial Disputes Act.

Right to seek clarification and Right to seek clarification and obtain information, on any item in obtain information, on any item in the accounts of the establishmentthe accounts of the establishment

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Disputes under the Bonus Disputes under the Bonus Act Act

Where any dispute arises between an employer and his Where any dispute arises between an employer and his employees with respect to the bonus payable under this Act or employees with respect to the bonus payable under this Act or with respect to the application of this Act to an establishment in with respect to the application of this Act to an establishment in public sector, then, such dispute shall be deemed to be an public sector, then, such dispute shall be deemed to be an industries dispute within the meaning of the Industrial Disputes industries dispute within the meaning of the Industrial Disputes Act, 1947 (14 of 1947), or of any corresponding law relating to Act, 1947 (14 of 1947), or of any corresponding law relating to investigation and settlement of industrial disputes in force in a investigation and settlement of industrial disputes in force in a State and the provisions of that Act. State and the provisions of that Act.

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Employees not eligible for BonusEmployees not eligible for Bonus

Nothing in this Act shall apply to –Nothing in this Act shall apply to –

(i) Employees employed by any insurer carrying on general (i) Employees employed by any insurer carrying on general insurance business and the employees employed by the Life insurance business and the employees employed by the Life Insurance Corporation of India;Insurance Corporation of India;

(ii) Seamen (ii) Seamen

(iii) Employees registered or listed under any scheme made (iii) Employees registered or listed under any scheme made under the Dock Workersunder the Dock Workers

(iv) Employees employed by an establishment engaged in (iv) Employees employed by an establishment engaged in any industry carried on by or under the authority of any any industry carried on by or under the authority of any department of the Central Government or a State department of the Central Government or a State Government or a Local authority;Government or a Local authority;

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Employees not eligible for BonusEmployees not eligible for Bonus

(v)(v) Employees employed by --Employees employed by -- (a) the Indian Red Cross Society or any other institution of (a) the Indian Red Cross Society or any other institution of

a like nature (including its branches); a like nature (including its branches);

(b) universities and other educational institutions;(b) universities and other educational institutions;

(c) institutions (including hospitals, chambers of commerce (c) institutions (including hospitals, chambers of commerce and social welfare institutions), established not for and social welfare institutions), established not for purposes of profit; purposes of profit;

(vi)(vi) Employees employed through contractor on Employees employed through contractor on building operations;building operations;

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Employees not eligible for BonusEmployees not eligible for Bonus

((vii)vii) Employees employed by the Reserve Bank of India;Employees employed by the Reserve Bank of India;

(viii)(viii) Employees employed by --Employees employed by --

the Industrial Finance Corporation of India;the Industrial Finance Corporation of India; any Financial Corporation established under section 3, any Financial Corporation established under section 3, or any Joint Financial Corporation established under section 3A,or any Joint Financial Corporation established under section 3A, of the State Financial Corporations Act, 1951 (63 of 1951);of the State Financial Corporations Act, 1951 (63 of 1951); the Deposit Insurance Corporation;the Deposit Insurance Corporation; the National Bank for Agriculture and Rural Development;]the National Bank for Agriculture and Rural Development;] the Unit Trust of India;the Unit Trust of India; the Industrial Development Bank of India;the Industrial Development Bank of India;

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Maintenance of Register, Maintenance of Register, Records & InspectorsRecords & Inspectors

Every employer shall prepare and Every employer shall prepare and maintain such registers, records and maintain such registers, records and other documents in such form and in other documents in such form and in such manner as may prescribed.such manner as may prescribed.

The appropriate Government may, The appropriate Government may, by notification on the Official by notification on the Official Gazette, appoint such person as it Gazette, appoint such person as it think fit to be Inspectors for the think fit to be Inspectors for the purposes of this Act and may define purposes of this Act and may define the limits within which they shall the limits within which they shall exercise jurisdiction.exercise jurisdiction.

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Inspectors DutiesInspectors Duties

An Inspector appointed under sub-section (1) may, for the An Inspector appointed under sub-section (1) may, for the purpose of ascertaining whether any of the provisions of purpose of ascertaining whether any of the provisions of this Act has been complied with –this Act has been complied with –

(a)(a) Require an employer to furnish such information as Require an employer to furnish such information as he may consider necessary;he may consider necessary;

(b) At any reasonable time and with such assistance, if (b) At any reasonable time and with such assistance, if any, as he thinks fit enter any establishment or any any, as he thinks fit enter any establishment or any premises connected therewith and require any one found premises connected therewith and require any one found in charge thereof to produce before him for examination in charge thereof to produce before him for examination any accounts, books, registers and other documents any accounts, books, registers and other documents relating to the employment of persons or the payment of relating to the employment of persons or the payment of salary or wage or bonus in the establishment. salary or wage or bonus in the establishment.

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OFFENCES AND PENALTIESOFFENCES AND PENALTIES

For contravention of the provisions of the Act or rules the penalty is For contravention of the provisions of the Act or rules the penalty is imprisonment upto 6 months, or fine up to Rs.1000, or both.imprisonment upto 6 months, or fine up to Rs.1000, or both.

For failure to comply with the directions or requisitions made the For failure to comply with the directions or requisitions made the penalty is imprisonment upto 6 months, or fine up to Rs.1000, or penalty is imprisonment upto 6 months, or fine up to Rs.1000, or both.both.

In case of offences by companies, firms, body corporate or In case of offences by companies, firms, body corporate or association of individuals, its director, partner or a principal officer association of individuals, its director, partner or a principal officer responsible for the conduct of its business, shall be deemed to be responsible for the conduct of its business, shall be deemed to be guilty of that offence, unless the person concerned proves that the guilty of that offence, unless the person concerned proves that the offence was committed without his knowledge or that he exercised offence was committed without his knowledge or that he exercised all due diligenceall due diligence

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