The Payment of Bonus Act, 1965
# THE PAYMENT OF BONUS ACT, 1965

__________

# ARRANGEMENT OF SECTIONS

__________


SECTIONS


1. Short title, extent and application.
2. Definitions.
3. Establishments to include departments, undertakings and branches.
4. Computation of gross profits.
5. Computation of available surplus.
6. Sums deductible from gross profits.
7. Calculation of direct tax payable by the employer.
8. Eligibility for bonus.
9. Disqualification for bonus.
10. Payment of minimum bonus.
11. Payment of maximum bonus.
12. Calculation of bonus with respect to certain employees.
13. Proportionate reduction in bonus in certain cases.
14. Computation of number of working days.
15. Set on and set off of allocable surplus.
16. Special provisions with respect to certain establishments.
17. Adjustment of customary or interim bonus against bonus payable under the Act.
18. Deduction of certain amounts from bonus payable under the Act.
19. Time-limit for payment of bonus.
20. Application of Act to establishments in public sector in certain cases.
21. Recovery of bonus due from an employer.
22. Reference of disputes under the Act.
23. Presumption about accuracy of balance-sheet and profit and loss account of corporations and

companies.

24. Audited accounts of banking companies not to be questioned.
25. Audit of accounts of employers, not being corporations or companies.
26. Maintenance of registers, records, etc.
27. Inspectors.
28. Penalty.
29. Offences by companies.
30. Cognizance of offences.
31. Protection of action taken under the Act.
31A. Special provision with respect to payment of bonus linked with production or productivity.
32. Act not to apply to certain classes of employees.
33. [Repealed.]
34. Effect of laws and agreements inconsistent with the Act.
35. Saving.
36. Power of exemption.
37. [Repealed.]
38. Power to make rules.
39. Application of certain law not barred.

1


-----

SECTIONS

40. Repeal and saving.

THE FIRST SCHEDULE.
THE SECOND SCHEDULE.
THE THIRD SCHEDULE.
THE FOURTH SCHEDULE.


2


-----

THE PAYMENT OF BONUS ACT, 1965


ACT NO. 21 OF 1965[1]

[25th September, 1965.]

2[An Act to provide for the payment of bonus to persons employed in certain establishments

# and for matters connected therewith.]

BE it enacted by Parliament in the Sixteenth Year of the Republic of India as follows:—

**1. Short title, extent and application.—(1) This Act may be called the Payment of Bonus**

Act, 1965.

(2) It extends to the whole of India [3]***.

(3) Save as otherwise provided in this Act, it shall apply to—

(a) every factory; and

(b) every other establishment in which twenty or more persons are employed on any day

during an accounting year:

4[Provided that the appropriate Government may, after giving not less than two months’ notice of

its intention so to do, by notification in the Official Gazette, apply the provisions of this Act with
effect from such accounting year as may be specified in the notification, to any establishment or class
of establishments [including an establishment being a factory within the meaning of sub-clause (ii) of
clause (m) of section 2 of the Factories Act, 1948 (63 of 1948)] employing such number of persons
less than twenty as may be specified in the notification; so, however, that the number of persons so
specified shall in no case be less than ten.]

(4) Save as otherwise provided in this Act, the provisions of this Act shall, in relation to a factory

or other establishment to which this Act applies, have effect in respect of the accounting year
commencing on any day in the year 1964 and in respect of every subsequent accounting year:

5[Provided that in relation to the State of Jammu and Kashmir*, the reference to the accounting

year commencing on any day in the year 1964 and every subsequent accounting year shall be
construed as reference to the accounting year commencing on any day in the year 1968 and every
subsequent accounting year:]

6[Provided further that when the provisions of this Act have been made applicable to any

establishment or class of establishments by the issue of a notification under the proviso to
sub-section (3), the reference to the accounting year commencing on any day in the year 1964 and
every subsequent accounting year or, as the case may be, the reference to the accounting year
commencing on any day in the year 1968 and every subsequent accounting year, shall, in relation to
such establishment or class of establishments, be construed as a reference to the accounting year
specified in such notification and every subsequent accounting year.]


(5) An establishment to which this Act applies [7]*** shall continue to be governed by this Act

notwithstanding that the number of person employed therein falls below twenty [8][or, as the case may
be, the number specified in the notification issued under the proviso to sub-section (3)].

1. The Act has been extended to Goa, Daman and Diu by Act 6 of 1977, s. 2 and the Schedule.
2. Subs. by Act 43 of 1977, s. 3, for the long title (w.e.f. 3-9-1977).
3. The words “except the State of Jammu and Kashmir” omitted by Act 51 of 1970, s. 2 and the Schedule (w.e.f. 1-9-1971).
4. The proviso added by Act 23 of 1976, s. 3 (w.e.f. 25-9-1975).
5. The proviso added by Act 51 of 1970, s. 2 and the Schedule (w.e.f. 1-9-1971).
6. The proviso inserted by Act 23 of 1976, s. 3 (w.e.f. 25-9-1975).
7. The words, brackets, letter and figure “under clause (b) of sub-section (3)” omitted by s. 3, ibid. (w.e.f. 25-9-1975).
8. Certain words, brackets and figure added by s. 3, ibid. (w.e.f. 25-9-1975).
*. Vide notification No. S.O. 3912(E), dated 30th October, 2019, this Act is made applicable to the Union territory of Jammu

and Kashmir and the Union territory of Ladakh.

3


-----

**2. Definitions.—In this Act, unless the context otherwise requires,—**

(1) “accounting year” means—

(i) in relation to a corporation, the year ending on the day on which the books and

accounts of the corporation are to be closed and balanced;

(ii) in relation to a company, the period in respect of which any profit and loss account of

the company laid before it in annual general meeting is made up, whether that period is a year
or not;

(iii) in any other case—

(a) the year commencing on the 1st day of April; or
(b) if the accounts of an establishment maintained by the employer thereof are closed

and balanced on any day other than the 31st day of March, then, at the option of the
employer, the year ending on the day on which its accounts are so closed and balanced:
Provided that an option once exercised by the employer under paragraph (b) of this

sub-clause shall not again be exercised except with the previous permission in writing of the
prescribed authority and upon such conditions as that authority may think fit;
(2) “agricultural income” shall have the same meaning as in the Income-tax Act;
(3) “agricultural income-tax law” means any law for the time being in force relating to the

levy of tax on agricultural income;

(4) “allocable surplus” means—

(a) in relation to an employer, being a company [1][(other than a banking company)] which

has not made the arrangements prescribed under the Income-tax Act for the declaration and
payment within India of the dividends payable out of its profits in accordance with the
provisions of section 194 of that Act, sixty-seven per cent. of the available surplus in an
accounting year;

(b) in any other case, sixty per cent. of such available surplus;

2*     -     -     -     
(5) “appropriate Government” means—

(i) in relation to an establishment in respect of which the appropriate Government under

the Industrial Disputes Act,1947 (14 of 1947), is the Central Government, the Central
Government;

(ii) in relation to any other establishment, the Government of the State in which that other

establishment is situate;
(6) “available surplus” means the available surplus computed under section 5;
(7) “award” means an interim or a final determination of any industrial dispute or of any

question relating thereto by any Labour Court, Industrial Tribunal or National Tribunal
constituted under the Industrial Disputes Act, 1947 (14 of 1947), or by any other authority
constituted under any corresponding law relating to investigation and settlement of industrial
disputes in force in a State and includes an arbitration award made under section 10A of that Act
or under that law;

(8) “banking company” means a banking company as defined in section 5 of the Banking

Companies Act, 1949 (10 of 1949), and includes the State Bank of India, any subsidiary bank as
defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), [3][any
corresponding new bank specified in the First Schedule to the Banking Companies (Acquisition
and Transfer of Undertakings) Act, 1970 (5 of 1970), [1][any corresponding new bank constituted
under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings)
Act, 1980 (40 of 1980),] any co-operative bank as defined in clause (vii) of section 2 of the
Reserve bank of India Act, 1934 (2 of 1934),] and any other banking institution which may be
notified in this behalf by the Central Government;

1. Ins. by Act 66 of 1980, s. 2 (w.e.f. 21-8-1980).
2. The words, brackets and figures “and includes any amount treated as such under sub-section (2) of section 34” omitted by

Act 23 of 1976, s. 4 (w.e.f. 25-9-1975).

3. Ins. by s. 4, ibid. (w.e.f. 25-9-1975).

4


-----

(9) “company” means any company as defined is section 3 of the Companies

Act, 1956 (1 of 1956), and includes a foreign company within the meaning of section 591 of that
Act;

(10) “co-operative society” means a society registered or deemed to be registered under the

Co-operative Societies Act, 1912 (2 of 1912), or any other law for the time being in force in any
State relating to co-operating societies;

(11) “corporation” means any body corporate established by or under any Central, Provincial

or State Act but does not include a company or a co-operative society;

(12) “direct tax” means—

(a) any lax chargeable under—

(i) the Income-tax Act;

(ii) the Super Profits Tax Act, 1963 (14 of 1963);

(iii) the Companies (Profits) Surtax Act, 1964 (7 of 1964);

(iv) the agricultural income-tax law; and

(b) any other tax which, having regard to its nature or incidence, may be declared by the

Central Government, by notification in the Official Gazette, to be a direct tax for the purposes
of this Act;

(13) “employee” means any person (other than an apprentice) employed on a salary or wage

not exceeding [1][twenty-one thousand rupees] per mensem in any industry to do any skilled or
unskilled manual, supervisory, managerial, administrative, technical or clerical work for hire or
reward, whether the terms of employment be express or implied;

(14) “employer” includes—

(i) in relation to an establishment which is a factory, the owner or occupier of the factory,

including the agent of such owner or occupier, the legal representative of a deceased owner or
occupier and where a person has been named as a manager of the factory under clause (f) of
sub-section (1) of section 7 of the Factories Act, 1948 (63 of 1948), the person so named; and

(ii) in relation to any other establishment, the person who, or the authority which, has the

ultimate control over the affairs of the establishment and where the said affairs are entrusted
to a manager, managing director or managing agent, such manager, managing director or
managing agent;

(15) “establishment in private sector” means any establishment other than an establishment in

public sector;

(16) “establishment in public sector” means an establishment owned, controlled or managed

by—

(a) a Government company as defined in section 617 of the Companies

Act, 1956 (1 of 1956);

(b) a corporation in which not less than forty per cent. of its capital is held (whether

singly or taken together) by—

(i) the Government; or

(ii) the Reserve Bank of India; or

(iii) a corporation owned by the Government or the Reserve Bank of India;

(17) “factory” shall have the same meaning as in clause (m) of section 2 of the Factories

Act, 1948 (63 of 1948);

1. Subs. by Act 6 of 2016, s. 2, for “ten thousand rupees” (w.e.f. 1-4-2014).

5


-----

(18) “gross profits” means the gross profits calculated under section 4;

(19) “Income-tax Act” means the Income-tax Act, 1961 (43 of 1961);

(20) “prescribed” means prescribed by rules made under this Act;

(21) “salary or wage” means all remuneration (other than remuneration in respect of over
time work) capable of being expressed in terms of money, which would, if the terms of
employment, express or implied, were fulfilled, be payable to an employee in respect of his
employment or of work done in such employment and includes dearness allowance (that is to say,
all cash payments, by whatever name called, paid to an employee on account of a rise in the cost
of living), but does not include—

(i) any other allowance which the employee is for the time being entitled to;

(ii) the value of any house accommodation or of supply of light, water, medical

attendance or other amenity or of any service or of any concessional supply of foodgrains or
other articles;

(iii) any travelling concession;

(iv) any bonus (including incentive, production and attendance bonus);

(v) any contribution paid or payable by the employer to any pension fund or provident

fund or for the benefit of the employee under any law for the time being in force;

(vi) any retrenchment compensation or any gratuity or other retirement benefit payable to

the employee or any ex gratia payment made to him;

(vii) any commission payable to the employee.

_Explanation.—Where an employee is given in lieu of the whole or part of the salary or wage_

payable to him, free food allowance or free food by his employer, such food allowance or the
value of such food shall, for the purpose of this clause, be deemed to from part of the salary or
wage of such employee;

(22) words and expressions used but not defined in this Act and defined in the Industrial

Disputes Act, 1947 (14 of 1947), shall have the meanings respectively assigned to them in that
Act.

**3. Establishments to include departments, undertakings and branches.—Where an**

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

Provided that where for any accounting year a separate balance-sheet and profit and loss account

are prepared and maintained in respect of any such department or undertaking or branch, then, such
department or undertaking or branch shall be treated as a separate establishment for the purpose of
computation of bonus, under this Act for that year, unless such department or undertaking or branch
was, immediately before the commencement of that accounting year treated as part of the
establishment for the purpose of computation of bonus.

**1[4. Computation of gross profits.—The gross profits derived by an employer from an**

establishment in respect of any accounting year shall—

(a) in the case of a banking company, be calculated in the manner specified in the First

Schedule;

(b) in any other case, be calculated in the manner specified in the Second Schedule.]

1. Subs. by Act 66 of 1980, s. 3, for section 4 (w.e.f. 21-8-1980).

6


-----

**5. Computation of available surplus.—The available surplus in respect of any accounting year**

shall be the gross profits for that year after deducting therefrom the sums referred to in section 6:

1[Provided that the available surplus in respect of the accounting year commencing on any day in

the year 1968 and in respect of every subsequent accounting year shall be the aggregate of—

(a) the gross profits for that accounting year after deducting therefrom the sums referred to in

section 6; and

(b) an amount equal to the difference between—

(i) the direct tax, calculated in accordance with the provisions of section 7, in respect of

an amount equal to the gross profits of the employer for the immediately preceding
accounting year; and

(ii) the direct tax, calculated in accordance with the provisions of section 7, in respect of

an amount equal to the gross profits of the employer for such preceding accounting year after
deducting therefrom the amount of bonus which the employer has paid or is liable to pay to
his employees in accordance with the provisions of this Act for that year.]

**6. Sums deductible from gross profits.—The following sums shall be deducted from the gross**

profits as prior charges, namely:—

(a) any amount by way of depreciation admissible in accordance with the provisions of

sub-section (1) of section 32 of the Income-tax Act, or in accordance with the provisions of the
agricultural income-tax law, as the case may be:

Provided that where an employer has been paying bonus to his employees under a settlement or

an award or agreement made before the 29the May, 1965, and subsisting on that date after deducting
from the gross profits notional normal depreciation, then, the amount of depreciation to be deducted
under this clause shall, at the option of such employer (such option to be exercised once and within
one year from the date) continue to be such notional normal depreciation;

(b) any amount by way of [2][development rebate or investment allowance or development

allowance] which the employer is entitled to deduct from his income under the income-tax Act;

(c) subject to the provisions of section 7, 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;

(d) such further sums as are specified in respect of the employer in the [3][Third Schedule].

**7. Calculation of direct tax payable by the employer.—[4][Any direct tax payable by the**

employer] for any accounting year shall, subject to the following provisions, be calculated at the rates
applicable to the income of the employer for that year, namely:—

(a) in calculating such tax no account shall be taken of—

(i) any loss incurred by the employer in respect of any previous accounting year and

carried forward under any law for the time being in force relating to direct taxes;

(ii) any arrears of depreciation which the employer is entitled to add to the amount of the

allowance for depreciation for any following accounting year or years under sub-section (2)
of section 32 of the Income-tax Act;

(iii) any exemption conferred on the employer under section 84 of the Income-tax Act or

of any deduction to which he is entitled under sub-section (1) of section 101 of that Act, as in
force immediately before the commencement of the Finance Act, 1965 (10 of 1965);

(b) where the employer is a religious or a charitable institution to which the provisions of

section 32 do not apply and the whole or any part of its income is exempt from tax under the

1. The proviso added by Act 8 of 1969, s. 2 (w.e.f. 26-3-1965).

2. Subs. by Act 66 of 1980, s. 4, for “development rebate or development allowance” (w.e.f. 21-8-1980).
3. Subs. by s. 4, ibid., for “Second Schedule” (w.e.f. 21-8-1980).
4. Subs. by Act 8 of 1969, s. 3, for “For the purpose of clause (c) of section 6, any direct tax payable by the employer”

(w.e.f. 26-3-1965).

7


-----

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 that
Act;

(c) where the employer is 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;

(d) where the income of any employer includes any profits and gains derived from the export

of any goods or merchandise out of India and any rebate on such income in allowed under any
law for the time being in force relating to direct taxes, then, no account shall be taken of such
rebate;

(e) no account shall be taken of any rebate [1][(other than development rebate or investment

allowance or development allowance)] or credit or relief or deduction (not herein
before mentioned in this section) in the payment of any direct tax allowed under any law for the
time being in force relating to direct taxes or under the relevant annual Finance Act, for the
development of any industry.

**8. Eligibility for bonus.—Every employee shall be entitled to be paid by his employer in an**

accounting year, bonus, in accordance with the provisions of this Act, provided he has worked in the
establishment for not less than thirty working days in that year.

**9. Disqualification for bonus.—Notwithstanding anything contained in this Act, an employee**

shall be disqualified from receiving bonus under this Act, if he is dismissed from service for—

(a) fraud; or

(b) riotous or violent behaviour while on the premises of the establishment; or

(c) theft, misappropriation or sabotage of any property of the establishment.

**2[10. Payment of minimum bonus.—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 per cent. of the salary of 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 completed fifteen years of age at the beginning of the

accounting year, the provisions of this section shall have effect in relation to such employees as if for
the words “one hundred rupees”, the words “sixty rupees” were substituted.

**11. Payment of maximum bonus.—(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 twenty
per cent. 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.]

**3[12. Calculation of bonus with respect to certain employees.—Where the salary or wage of an**

employee exceeds [4][seven thousand rupees or the minimum wage for the scheduled employment, as
fixed by the appropriate Government, whichever is higher] per mensem, the bonus payable to such
employee under section 10 or, as the case may be, under section 11, shall be calculated as if his salary

1. Subs. by Act 66 of 1980, s. 5, for “(other than development rebate or development allowance)” (w.e.f. 21-8-1980).
2. Subs. by s. 6, ibid., for section 10 (w.e.f. 21-8-1980).
3. Ins. by Act 67 of 1985, s. 3 (w.e.f. 7-11-1985).
4. Subs. by Act 6 of 2016, s. 3, for “three thousand and five hundred rupees” (w.e.f. 1-4-2014).

8


-----

or wage were [1][seven thousand rupees or the minimum wage for the scheduled employment, as fixed
by the appropriate Government, whichever is higher] per mensem.]

2[Explanation.—For the purposes of this section, the expression “scheduled employment” shall

have the same meaning as assigned to it in clause (g) of section 2 of the Minimum Wages Act, 1948
(11 of 1948).]

**3[13. Proportionate reduction in bonus in certain cases.—Where an employee has not worked**

for all the working days in an accounting year, the minimum bonus of one hundred rupees or, as the
case may be, of sixty rupees, if such bonus is higher than 8.33 per cent. of his salary or wage for the
days he has worked in that accounting year, shall be proportionately reduced.]

**14. Computation of number of working days.—For the purposes of section 13, an employee**

shall be deemed to have worked in an establishment in any accounting year also on the days on
which—

(a) he has been laid off under an agreement or as permitted by standing orders under the

Industrial Employment (Standing Orders) Act, 1946 (20 of 1946), or under the Industrial
Disputes Act, 1947 (14 of 1947), or under any other law applicable to the establishment;

(b) he has been on leave with salary or wage;

(c) he has been absent due to temporary disablement caused by accident arising out of and in

the course of his employment; and

(d) the employee has been on maternity leave with salary or wage, during the accounting

year.

**4[15. Set on and set off of allocable surplus.—(1) Where for any accounting year, the allocable**

surplus exceeds the amount of maximum bonus payable to the employees in the establishment under
section 11, then, the excess shall, subject to a limit of twenty per cent. of the total salary or wage of
the employees employed in the establishment in that accounting year, be carried forward for being set
on in the succeeding accounting year and so on up to and inclusive of the fourth accounting year to be
utilised for the purpose of payment of bonus in the manner illustrated in the Fourth Schedule.

(2) Where for any accounting year, there is no available surplus or the allocable surplus in respect

of that year falls short of the amount of minimum bonus payable to the employees in the
establishment under section 10, and there is no amount of sufficient amount carried forward and set
on under sub-section (1) which could be utilised for the purpose of payment of the minimum bonus,
then, such minimum amount or the deficiency, as the case may be, shall be carried forward for being
set off in the succeeding accounting year and so on up to and inclusive of the fourth accounting year
in the manner illustrated in the Fourth Schedule.

(3) The principle of set on and set off as illustrated in the Fourth Schedule shall apply to all other

cases not covered by sub-section (1) or sub-section (2) for the purpose of payment of bonus under this
Act.

(4) Where in any accounting year any amount has been carried forward and set on or set off under

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

**16. Special provisions with respect to certain establishments.—[5][(1) Where an establishments**

newly set up, whether before or after the commencement of this Act, the employees of such
establishment shall be entitled to be paid bonus under this Act in accordance with the provisions of
sub-sections (1A), (1B) and (1C).

1. Subs. by Act 6 of 2016, s. 3, for “three thousand and five hundred rupees” (w.e.f. 1-4-2014).
2. The Explanation inserted by s. 3, ibid. (w.e.f. 1-4-2014).
3. Subs. by Act 66 of 1980, s. 8, for section 13 (w.e.f. 21-8-1980).
4. Subs. by s. 9, ibid., for section 15 (w.e.f. 21-8-1980).
5. Subs. by Act 23 of 1976, s. 12, for sub-section (1) and the Explanation thereto (w.e.f. 25-9-1975).

9


-----

(1A) In the first five accounting years following the accounting year in which the employers sells

the goods produced or manufactured by him or renders services, as the case may be, from such
establishment, bonus shall be payable only in respect of the accounting year in which the employer
derives profit from such establishment and such bonus shall be calculated in accordance with the
provisions of this Act in relation to that year, but without applying the provisions of section 15.

(1B) For the sixth and seventh accounting years following the accounting year in which the

employer sells the goods produced or manufactured by him or renders services, as the case may be,
from such establishment, the provisions of section 15 shall apply subject to the following
modifications, namely:—

(i) for the sixth accounting year—

set on or set off, as the case may be, shall be made in the manner illustrated in the [1][Fourth
Schedule] taking into account the excess or deficiency, if any, as the case may be, of the
allocable surplus set on or set off in respect of the fifth and sixth accounting years;

(ii) for the seventh accounting year—

set on or set off, as the case may be, shall be made in the manner illustrated in the [1][Fourth
Schedule] taking into account the excess or deficiency, if any, as the case may be, of the
allocable surplus set on or set off in respect of the fifth, sixth and seventh accounting years.

(1C) From the eighth accounting year following the accounting year in which the employer sells

the goods produced or manufactured by him or renders services, as the case may be, from such
establishment, the provisions of section 15 shall apply in relation to such establishment as they apply
in relation to any other establishment.

_Explanation I.—For the purpose of sub-section (1), an establishment shall not be deemed to be_

newly set up merely by reason of a change in its location, management, name or ownership.

_Explanation II.—For the purpose of sub-section (1A), an employer shall not be deemed to be have_

derived profit in any accounting year unless—

(a) he has made provision for that year’s depreciation to which he is entitled under the

Income-tax Act or, as the case may be, under the agricultural income-tax law; and

(b) the arrears of such depreciation and losses incurred by him in respect of the

establishment for the previous accounting years have been fully set off against his profits.

_Explanation III.—For the purposes of sub-sections (1A), (1B) and (1C), sale of the goods_

produced or manufactured during the course of the trial running of any factory or of the prospecting
stage of any mine or an oil field shall not be taken into consideration and where any question arises
with regard to such production or manufacture, the decision of the appropriate Government, made
after giving the parties a reasonable opportunity of representing the case, shall be final and shall not
be called in question by any court or other authority.]

(2) The provisions of [2][sub-sections (1), (1A), (1B) and (1C)] shall, so far as may be, apply to new

departments or undertakings or branches set up by existing establishments:

Provided that if an employer in relation to an existing establishment consisting of different

(departments or undertakings or branches (whether or not in the same industry) set up at different
periods has, before the 29th May, 1965, been paying bonus to the employees of all such departments
or undertakings or branches irrespective of the date on which such departments or undertakings or
branches were set up, on the basis of the consolidated profits computed in respect of all such
departments or undertakings or branches, then, such employer shall be liable to pay bonus in
accordance with the provisions of this Act to the employees of all such departments or undertakings
or branches (whether set up before or after that date) on the basis of the consolidated profits computed
as aforesaid.

1. Subs. by Act 66 of 1980, s. 10, for “Third Schedule” (w.e.f. 21-8-1980).
2. Subs. by Act 23 of 1976, s. 12, for “sub-section (1)” (w.e.f. 25-9-1975).

10


-----

**17. Adjustment of customary or interim bonus against bonus payable under the**

**Act.—Where in any accounting year—**

(a) an employer has paid any puja bonus or other customary bonus to an employee; or

(b) an employer has paid a part of the bonus payable under this Act to an employee before the

date on which such bonus becomes payable,

then, the employer shall be entitled to deduct the amount of bonus so paid from the amount of bonus
payable by him to the employee under this Act in respect of that accounting year and the employee
shall be entitled to receive only the balance.

**18. Deduction of certain amounts from bonus payable under the Act.—Where in any**

accounting year, an employee is found guilty of misconduct causing financial loss to the employer,
then, it shall be lawful for the employer to deduct the amount of loss from the amount of bonus
payable by him to the employee under this Act in respect of that accounting year only and the
employee shall be entitled to receive the balance, if any.

**19. Time-limit for payment of bonus.—[1][All amounts] payable to an employee by way of bonus**

under this Act shall be paid in cash by his employer—

(a) where there is a dispute regarding payment of bonus pending before any authority under

section 22, within a month from the date on which the award becomes enforceable or the
settlement comes into operation, in respect of such dispute;

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

Provided that the appropriate Government or such authority as the appropriate Government may

specify in this behalf may, upon an application made to it by the employer and for sufficient reasons,
by order, extend the said period of eight months to such further period or periods as it thinks fit; so,
however, that the total period so extended shall not in any case exceed two years.

2*  -  -  - *.

3*  -  -  - *.

**20. Application of Act to establishments in public sector in certain cases.—[4][(1)] If in any**

accounting year an establishment in public sector sells any goods produced or manufactured by it or
renders any services, in competition with an establishment in private sector, and the income from
such sale or services or both is not less than twenty per cent. of the gross income of the establishment
in public sector for that year, then, the provisions of this Act shall apply in relation to such
establishment in public sector as they apply in relation to a like establishment in private sector.

5[(2) Save as otherwise provided in sub-section (1), nothing in this Act shall apply to the

employees employed by any establishment in public sector.]

**21. Recovery of bonus due from an employer.—Where any money is due to an employee by**

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

Provided that every such application shall be made within one year from the date on which the

money became due to the employee from the employer:

1. Subs. by Act 23 of 1976, s. 13, for “(1) Subject to this provisions of this section, all amounts” (w.e.f. 25-9-1975).
2. Sub-sections (2) to (7) omitted by s. 13, ibid. (w.e.f. 25-9-1975).
3. Sub-section (8) omitted by Act 55 of 1973, s. 2 (w.e.f. 1-9-1973).
4. Section 20 renumbered as sub-section (1) thereof by Act 66 of 1980, s. 11 (w.e.f. 21-8-1980).
5. Ins. by s. 11, ibid. (w.e.f. 21-8-1980).

11


-----

Provided further that any such application may be entertained after the expiry of the said period

of one year, if the appropriate Government is satisfied that the applicant had sufficient cause for not
making the application within the said period.

_Explanation—In this section and in_ [1][sections 22, 23, 24 and 25], “employee” includes a person

who is entitled to the payment of bonus under this Act but who is no longer in employment.

**22. Reference of disputes under the Act.—Where any dispute arises between an employer**

and his employees with respect to the bonus payable under this Act or with respect to the application
of this Act to an establishment in public sector, then, such dispute shall be deemed to be an industrial
dispute within the meaning of the Industrial Disputes Act, 1947 (14 of 1947), or of any corresponding
law relating to investigation and settlement of industrial disputes in force in a State and the provisions
of that Act or, as the case may be, such law, shall, save as otherwise expressly provided, apply
accordingly.

**23. Presumption about accuracy of balance-sheet and profit and loss account of**

**corporations and companies.—(1) Where, during the course of proceedings before any arbitrator or**
Tribunal under the Industrial Disputes Act, 1947 (14 of 1947), or under any corresponding law
relating to investigation and settlement of industrial disputes in force in a State (hereinafter in this
section [2][and in [3][sections 24 and 25] referred to as the “said authority”) to which any dispute of the
nature specified in section 22 has been referred, the balance-sheet and the profit and loss account of
an employer, being a corporation or a company (other than a banking company), duly audited by the
Comptroller and Auditor-General of India or by auditors duly qualified to act as auditors of
companies under sub-section (1) of section 226 of the Companies Act, 1956 (1 of 1956), are produced
before it, then, the said authority may presume the statements and particulars contained in such
balance-sheet and profit and loss account to be accurate and it shall not be necessary for the
corporation or the company to prove the accuracy of such statements and particulars by the filing of
an affidavit or by any other mode:

Provided that where the said authority is satisfied that the statement and particulars contained in

the balance-sheet or the profit and loss account of the corporation or the company are not accurate, it
may take such steps as it thinks necessary to find out the accuracy of such statements and particulars.

(2) When an application is made to the said authority by any trade union being a party to the

dispute or where there is no trade union, by the employees being a party to the dispute, requiring any
clarification relating to any item in the balance-sheet or the profit and loss account, it may, after
satisfying itself that such clarification is necessary, by order, direct the corporation or, as the case may
be, the company, to furnish to the trade union or the employees such clarification within such time as
may be specified in the direction and the corporation or, as the case may be, the company, shall
comply with such direction.

4[24. Audited accounts of banking companies not to be questioned.—(1) Where any dispute of

the nature specified in section 22 between an employer, being a banking company, and its employees
has been referred to the said authority under that section and during the course of proceedings the
accounts of the banking company duly audited are produced before it, the said authority shall not
permit any trade union or employees to question the correctness of such accounts, but the trade union
or the employees may be permitted to obtain from the banking company such information as is
necessary for verifying the amount of bonus due under this Act.

(2) Nothing contained in sub-section (1) shall enable the trade union on the employees to obtain

any information which the banking company is not compelled to furnish under the provisions of
section 34A of the Banking Regulation Act, 1949 (10 of 1949).]

**25. Audit of accounts of employers, not being corporations or companies.—(1) Where any**

dispute of the nature specified in section 22 between an employer, not being a corporation or a
company, and his employees has been referred to the said authority under that section and the

1. Subs. by Act 66 of 1980, s. 12, for “sections 22, 23 and 25” (w.e.f. 21-8-1980).
2. Subs. by Act 23 of 1976, s. 16, for “and in sections 24 and 25” (w.e.f. 25-9-1975).
3. Subs. by Act 66 of 1980, s. 13, for “section 25” (w.e.f. 21-8-1980).
4. Ins. by s. 14, ibid. (w.e.f. 21-8-1980).

12


-----

accounts of such employer audited by any auditor duly qualified to act as auditor of companies under
sub-section (1) of section 226 of the Companies Act, 1956 (1 of 1956), are produced before the said
authority, the provisions of section 23, shall, so far as may be, apply to the accounts so audited.

(2) When the said authority finds that the accounts of such employer have not been audited by

any such auditor and it is of opinion that an audit of the accounts of such employer is necessary for
deciding the question referred to it, then, it may, by order, direct the employer to get his accounts
audited within such time as may be specified in the direction or within such further time as it may
allow by such auditor or auditors as it thinks fit and thereupon the employer shall comply with such
direction.

(3) Where an employer fails to get the accounts audited under sub-section (2) the said authority

may, without prejudice to the provisions of section 28, get the accounts audited by such auditor or
auditors as it thinks fit.

(4) When the accounts are audited under sub-section (2) or sub-section (3) the provisions of

section 23 shall, so far as may be, apply to the accounts so audited.

(5) The expenses of, and incidental to, any audit under sub-section (3) (including the

remuneration of the auditor or auditors) shall be determined by the said authority (which
determination shall be final) and paid by the employer and in default of such payment shall be
recoverable from the employer in the manner provided in section 21.

**26. Maintenance of registers, records, etc.—Every employer shall prepare and maintain such**

registers, records and other documents in such form and in such manner as may be prescribed.

**27. Inspectors.—(1) The appropriate Government may, by notification in the Official Gazette,**

appoint such person as it thinks fit to be Inspectors for the purposes of this Act and may define the
limits within which they shall exercise jurisdiction.

(2) An Inspector appointed under sub-section (1) may, for the purpose of ascertaining whether

any of the provisions of this Act has been complied with—

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

(b) at any reasonable time and with such assistance, if any, as he thinks fit, enter any

establishment or any premises connected therewith and require any one found in charge thereof to
produce before him for examination any accounts, books, registers and other documents relating
to the employment of persons or the payment of salary of wage or bonus in the establishment;

(c) examine with respect to any matter relevant to any of the purposes aforesaid, the

employer, his agent or servant or any other person found in charge of the establishment or any
premises connected therewith or any person whom the Inspector has reasonable cause to believe
to be or to have been an employee in the establishment;

(d) make copies of, or take extracts from, any book, register or other document maintained in

relation to the establishment;

(e) exercise such other powers as may be prescribed.

(3) Every Inspector shall be deemed to be a public servant within the meaning of the Indian penal

Code (45 of 1860).

(4) Any person required to produce any accounts, book, register or other documents or to give

information by an Inspector under sub-section (1) shall be legally bound to do so.

1[(5) Nothing contained in this section shall enable an Inspector to require a banking company to

furnish or disclose any statement or information or to produce, or give inspection of, any of its books
of account or other documents, which a banking company cannot be compelled to furnish, disclose,
produce or give inspection of, under the provisions of section 34A of the Banking Regulation
Act, 1949 (10 of 1949).]

1. Ins. by Act 66 of 1980, s. 15 (w.e.f. 21-8-1980).

13


-----

**28. Penalty.—If any person—**

(a) contravenes any of the provisions of this Act or any rule made thereunder; or

(b) to whom a direction is given or a requisition is made under this Act fails to comply with

the direction or requisition,

he shall be punishable with imprisonment for a term which may extend to six months, or with fine
which may extend to one thousand rupees, or with both.

**29. Offences by companies.—(1) If the person committing an offence under this Act is a**

company, every person who, at the time the offence was committed, was in charge of, and was
responsible to, the company for the conduct of business of the company, as well as the company, shall
be deemed to be guilty of the offence and shall be liable to be proceeded against and punished
accordingly:

Provided that nothing contained in this sub-section shall render any such person liable to any

punishment if he proves that the offence was committed without his knowledge or that he exercised
all due diligence to prevent the commission of such offence.

(2) Notwithstanding anything contained in sub-section (1), where an offence under this Act has

been committed by a company and it is proved that the offence has been committed with the consent
or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or
other officer of the company, such director, manager, secretary or other officer shall also be deemed
to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.

_Explanation.—For the purposes of this section,—_

(a) “company” means any body corporate and includes a firm or other association of

individuals; and

(b) “director”, in relation to a firm, means a partner in the firm.

**30. Cognizance of offences.—(1) No court shall take cognizance of any offence punishable under**

this Act, save on complaint made by or under the authority of the appropriate Government [1][or an
officer of that Government (not below the rank of a Regional Labour Commissioner in the case of an
officer of the Central Government, and not below the rank of a Labour Commissioner in the case of
an officer of the State Government) specially authorised in this behalf by that Government].

(2) No court inferior to that of a presidency magistrate or a magistrate of the first class shall try

any offence punishable under this Act.

**31. Protection of action taken under the Act.—No suit, prosecution or other legal proceeding**

shall lie against the Government or any officer of the Government for anything which is in good faith
done or intended to be done in pursuance of this Act or any rule made thereunder.

**2[31A. Special provision with respect to payment of bonus linked with production or**

**productivity.—Notwithstanding anything contained in this Act,—**

(i) where an agreement or a settlement has been entered into by the employees with their

employer before the commencement of the Payment of Bonus (Amendment)

Act, 1976 (23 of 1976), or

(ii) where the employees enter into any agreement or settlement with their employer after

such commencement,

for payment of an annual bonus linked with production or productivity in lieu of bonus based on
profits payable under this Act, then, such employees shall be entitled to receive bonus due to them
under such agreement or settlement, as the case may be:

3[Provided that any such agreement or settlement whereby the employees relinquish their right to

receive the minimum bonus under section 10 shall be null and void in so far as it purports to deprive
them of such right:]]

1. Ins. by Act 66 of 1980, s. 16 (w.e.f. 21-8-1980).
2. Ins. by Act 23 of 1976, s. 19 (w.e.f. 25-9-1975).
3. Ins. by Act 66 of 1980, s. 17 (w.e.f. 21-8-1980).

14


-----

1[Provided further that] such employees shall not be entitled to be paid such bonus in excess of

twenty per cent. of the salary or wage earned by them during the relevant accounting year.

**32. Act not to apply to certain classes of employees.—Nothing in this Act shall apply to—**

(i) [2][employees employed by any insurer carrying on general insurance business and the]

employees employed by the Life Insurance Corporation of India;

(ii) seamen as defined in clause (42) of section 3 of the Merchant Shipping Act, 1958

(44 of 1958);


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

(Regulation of Employment) Act, 1948 (9 of 1948), and employed by registered or listed
employers;

(iv) employees employed by an establishment engaged in any industry carried on by or under

the authority of any department of the Central Government or a State Government or a local
authority;

(v) employees employed by—

(a) the Indian Red Cross Society or any other institution of a like nature (including its

branches);


(b) universities and other educational institutions;


(c) institutions (including hospitals, chambers of commerce and social welfare

institutions) established not for purposes of profit;

3* - - - *;

4* - - - *;


(viii) employees employed by the Reserve Bank of India;


(ix) employees employed by—


(a) the Industrial Finance Corporation of India;


(b) any Financial Corporation established under section 3, or any Joint Financial

Corporation established under section 3A, of the State Financial Corporations Act, 1951
(63 of 1951);


(c) the Deposit Insurance Corporation;


5[(d) the National Bank for Agriculture and Rural Development;]


(e) the Unit Trust of India;


(f) the Industrial Development Bank of India;


6[(fa) the Small Industries Development Bank of India established under section 3 of the

Small Industries Development Bank of India Act, 1989 (39 of 1989);]


7[(ff) the National Housing Bank;]


1. Subs. by Act 66 of 1980, s. 17, for “Provided that” (w.e.f. 21-7-1980).
2. The words in brackets shall stand omitted (date to be notified) by Act 62 of 1968, s. 41.
3. Clause (vi) omitted by Act 45 of 2007, s. 4 (w.e.f. 1-4-2006).
4. Clause (vii) omitted by Act 66 of 1980, s. 18 (w.e.f. 21-7-1980).
5. Subs. by Act 61 of 1981, s. 61 and the Second Schedule, for sub-clause (d) (w.e.f. 2-7-1982).
6. Ins. by Act 39 of 1989, s. 53 and the Second Schedule (w.e.f. 7-3-1990).
7. Ins. by Act 53 of 1987, s. 56 and the Second Schedule (w.e.f. 9-7-1988).

15


-----

(g) any other financial institution [1][(other than a banking company)], being an

establishment in public sector, which the Central Government may, by notification in the
Official Gazette, specify, having regard to—


(i) its capital structure;


(ii) its objectives and the nature of its activities;


(iii) the nature and extent of financial assistance or any concession given to it by

the Government; and


(iv) any other relevant factor;


2*      -      -      - *;

(xi) employees employed by inland water transport establishments operating on routes

passing through any other country.

**33. [** _Act to apply to certain pending disputes regarding payment of bonus.]—Rep. by the Payment_

_of Bonus (Amendment) Act, 1976 (23 of 1976), s. 23 (w.e.f. 25-9-1975)._

**3[34. Effect of laws and agreements inconsistent with the Act.—Subject to the provisions of**

section 31A, the provisions of this Act shall have effect notwithstanding anything inconsistent
therewith contained in any other law for the time being in force or in the terms of any award,
agreement, settlement or contract of service.]

**35. Saving.—Nothing contained in this Act shall be deemed to affect the provisions of the Coal**

Mines Provident Fund and Bonus Schemes Act, 1948 (46 of 1948), or of any scheme made
thereunder.

**36. Power of exemption.—If the appropriate Government, having regard to the financial position**

and other relevant circumstances of any establishment or class of establishment, is of opinion that it
will not be in public interest to apply all or any of the provisions of this Act thereto, it may, by
notification in the Official Gazette, exempt for such period as may be specified therein and subject to
such conditions as it may think fit to impose, such establishment or class of establishments from all or
any of the provisions of this Act.

**37. [Power to remove difficulties].—Rep.** _by the Payment of Bonus (Amendment)_

_Act, 1976 (23 of 1976), s. 23 (w.e.f. 25-9-1975)._

**38. Power to make rules.—[4][(1) The Central Government may, subject to the condition of**

previous publication, by notification in the Official Gazette, make rules to carry out the provisions of
this Act.]

(2) In particular, and without prejudice to the generality of the foregoing power, such rules may

provide for—

(a) the authority for granting permission under the proviso to sub-clause (iii) of clause (1) of

section 2;

(b) the preparation of registers, records and other documents and the form and manner in

which such registers, records and documents may be maintained under section 26;

(c) the powers which may be exercised by an Inspector under clause (e) of sub-section (2) of

section 27;


(d) any other matter which is to be, or may be, prescribed.


(3) Every rule made under this section shall be laid as soon as may be after it is made, before each

House of Parliament while it is in session for a total period of thirty days, which may be comprised in
one session [5][or in two or more successive sessions], and if before the expiry of the
session [6][immediately following the session or the successive sessions aforesaid], both Houses agree

1. Ins. by Act 66 of 1980, s. 18 (w.e.f. 21-8-1980).
2. Clause (x) omitted by Act 23 of 1976, s. 20 (w.e.f. 25-9-1975).
3. Subs. by s. 22, ibid., for section 34 (w.e.f. 25-9-1975).
4. Subs. by Act 6 of 2016, s. 4, for sub-section (1) (w.e.f. 1-4-2014).
5. Subs. by Act 23 of 1976, s. 24, for “or in two successive sessions” (w.e.f. 25-9-1975).
6. Subs. by s. 24, ibid., for “in which it is so laid or the session immediately following” (w.e.f. 25-9-1975).

16


-----

in making any modification in the rule or both Houses agree that the rule should not be made, the rule
shall thereafter have effect only in such modified form or be of no effect, as the case may be; so,
however, that any such modification or annulment shall be without prejudice to the validity of
anything previously done under that rule.

**39. Application of certain law not barred.—Save as otherwise expressly provided, the**

provisions of this Act shall be in addition to and not in derogation of the Industrial Disputes
Act, 1947 (14 of 1947), or any corresponding law relating to investigation and settlement of industrial
disputes in force in a State.

**40. Repeal and saving.—(1) The Payment of Bonus Ordinance, 1965 (3 of 1965), is hereby**

repealed.

(2) Notwithstanding such repeal, anything done or any action taken under the said Ordinance

shall be deemed to have been done or taken under this Act as if this Act had commenced on the 29th
May, 1965.

17


-----

**1[THE FIRST SCHEDULE**

[See section 4 (a)]

COMPUTATION OF GROSS PROFITS

_Accounting Year ending ......_


Item
No.


Particulars Amount of

sub-items


Amount of
main items


Remarks


2[1. _Net Profit,_ as show in the Profit and
Loss Account after making usual and
necessary provisions.

2. _Add back provision for:_

(a) Bonus to employees.

(b) Depreciation.


Rs. Rs.


(c) Development Rebate Reserve. _See foot-note (1)_

(d) Any other reserves. _See foot-note (1)_

Rs.
Total of Item No. 2   .     .       .

3. _Add back also:_ _See foot-note (1)_


(a) Bonus paid to employees in respect

of previous accounting years.

(b) The amount debited in respect of

gratuity paid or payable to

employees in excess of the

aggregate of—

(i) the amount, if any, paid to, or

provided for payment to, an
approved gratuity fund; and

(ii) the amount actually paid to

employees on their retirement
or on termination of their
employment for any reason.

(c) Donations in excess of the amount

admissible for income-tax.


_See foot-note (1)_


1. Ins. by Act 66 of 1980, s. 19 (w.e.f. 21-8-1980).
2. Where the profit subject to taxation is shown in the Profit and Loss Account and the provision made for taxes on income

is shown, the actual provision for taxes on income shall be deducted from the profit.

18


-----

Item
No.


Particulars Amount of

sub-items


Amount of main

items


Remarks

_See foot-note (1)_


Rs. Rs.

(d) Capital expenditure (other

than capital expenditure on
scientific research which is
allowed as a deduction under
any law for the time being in
force relating to direct taxes)
and capital losses (other than
losses on sale of capital
assets on which depreciation
has been allowed for

income-tax).

(e) Any amount certified by the

Reserve Bank of India in
terms of sub-section (2) of
section 34A of the Banking
Regulation Act, 1949

(10 of 1949).

(f) Losses of, or expenditure

relating to, any business
situated outside India.

Total of Item No. 3.   .  .    . Rs.

4. _Add also income, profits or gains_
(if any) credited directly to
published or disclosed reserves,
_other than—_

(i) capital receipts and capital

profits (including profits on
the sale of capital assets on
which depreciation has not
been allowed for incometax);

(ii) profits of, and receipts

relating to, any business
situated outside India;

(iii) income of foreign banking

companies from investment
outside India.

Net total of Item No. 4. . . .  . Rs.

5. Total of Item Nos. 1, 2, 3 and 4 Rs.

19


-----

Item
No.

6. _Deduct:_


Particulars Amount of

sub-items


Amount of
main items


Remarks

_See foot-note (2)_

_See foot-note (2)_

_See foot-note (2)_

_See foot-note (3)_

_See foot-note (2)_

_See foot-note (2)_


Rs. Rs.


(a) Capital receipts and capital

profits (other than profits on
the sale of assets on which
depreciation has been

allowed for income-tax).

(b) Profits of, and receipts

relating to, any business
situated outside India.

(c) Income of foreign banking

companies from investments
outside India.

(d) Expenditure or losses (if any)

debited directly to published
or disclosed reserves, _other_
_than—_

(i) capital expenditure and

capital losses (other

than losses on sale of
capital assets on which
depreciation has not

been allowed for

income-tax);

(ii) losses of any business

situated outside India.

(e) In the case of foreign banking

companies proportionate

administrative (overhead)

expenses of Head Office
allocable to Indian business.

(f) Refund of any excess direct

tax paid for previous

accounting years and excess
provision, if any, of previous
accounting years, relating to
bonus, depreciation, or

development rebate, if

written back.

(g) Cash subsidy, if any, given by

the Government or by any body
corporate established by any
law for the time being in force
or by any other agency through
budgetary grants, whether given
directly or through any agency
for specified purposes and the
proceeds of which are reserved
for such purposes.

Total of Item No. 6.   .  .   .

7. Gross Profits for purposes of
bonus (Item No. 5 minus Item
No. 6)


Rs. Rs.


20


-----

[Explanation.—In sub-item (b) of Item 3, “approved gratuity fund” has the same meaning

assigned to it in clause (5) of section 2 of the Income-tax Act.

_Foot-notes—_

(1) It, and to the extent, charged to Profit and Loss Account.

(2) If, and to the extent, credited to Profit and Loss Account.

(3) In the proportion of Indian Gross Profit (Item No. 7) to Total World Gross Profit (as per

Consolidated Profit and Loss Account adjusted as in Item No. 2 above only).]

21


-----

1[THE SECOND SCHEDULE]

2[See section 4(b)]

COMPUTATION OF GROSS PROFITS

_Accounting Year ending......_


Item

No.


Particulars Amount of

sub-items


Amount of
main items


Remarks

_See foot-note (1)_


Rs. Rs.


1. _Net Profit_ as per Profit and Loss
Account.

2. _Add back provision for:_

(a) Bonus to employees.

(b) Depreciation.

(c) Direct taxes, including the

provision (if Any) for previous
accounting years.

3[(d) development

rebate/Investment
allowance/development
allowance reserve.]


(e) Any other reserves. _See foot-note_ (1)

Total of Item No. 2. .  .   .  . Rs.

3. _Add back also :_


(a) Bonus paid to employees in

respect of previous accounting
years.

4[(aa) The amount debited in

respect of gratuity paid or
payable to employees in
excess of the aggregate of—

(i) the amount, if any, paid to,

or provided for payment to,
an approved gratuity fund;
and

(ii) the amount actually paid to

employees on their

retirement or on termination
of their employment for any
reason.]


_See foot-note (1)_


1. The First Schedule renumbered as the Second Schedule by Act 66 of 1980, s. 19 (w.e.f. 21-8-1980).
2. Subs. by s. 19, ibid., for “(See section 4)” (w.e.f. 21-8-1980).
3. Subs. by s. 19, ibid., for entry (d) (w.e.f. 21-8-1980).
4. Ins. by Act 23 of 1976, s. 26 (w.e.f. 25-9-1975).

22


-----

Ite

m

No.


Particulars Amount of

sub-items


Amount of
main items


Remarks


Rs. Rs.

(b) Donations in excess of the among

admissible for income-tax.

(c) Any annuity due, or commuted

value of any annuity paid, under
the provisions of section 280D of
the Income-tax Act during the
accounting year.

(d) Capital expenditure (other than

capital expenditure on scientific
research which is allowed as a
deduction under any law for the
time being in force relating to
direct taxes) and capital losses
(other than losses on sale of
capital assets on which

depreciation has been allowed for
income-tax or agricultural

income-tax).

(e) Losses of, or expenditure relating

to, any business situated outside
India.

Total of Item No. 3  .      .     . Rs.

4. _Add also Income, profits or gains (if_
any) credited directly to reserves,
_other than—_

(i) capital receipts and capital profits

(including profits on the sale of
capital assets on which

depreciation has not been allowed
for income-tax or agricultural
income-tax);

(ii) profits of, and receipts relating to,

any business situated outside
India;

(iii) income of foreign concerns from

investments outside India.

Rs.
Net total of Item No. 4 .   .  .   .

5. Total of Item Nos. 1, 2, 3, and 4 .  . . Rs.

23


_See foot-note (1)_


-----

Item

No.

6. _Deduct :_


Particulars Amount of

sub-items


Amount of
main items


Remarks

_See foot-note (2)_

_See foot-note (2)_

_See foot-note (2)_

_See foot-note (3)_

_See foot-note (2)_


Rs. Rs.


(a) Capital receipts and capital

profits (other than profits on
the sale of assets on which
depreciation has been allowed
for income-tax or agricultural
income-tax).

(b) Profits of, and receipts relating

to, any business situated

outside India.

(c) Income of foreign concerns

from investment outside India.

(d) Expenditure or losses (if any)

debited directly to reserves,
_other than—_

(i) capital expenditure and

capital losses (other than
losses on sale of capital
assets on which

depreciation has not been
allowed for income-tax or
agricultural income-tax);

(ii) losses of any business

situated outside India.

(e) In the case of foreign concerns

proportionate administrative

(overhead) expenses of Head
Office allocable to Indian
business.

(f) Refund of any direct tax paid

for previous accounting years
and excess provision, if any, of
previous accounting years

relating to bonus, depreciation,
taxation or development rebate
or development allowance, if
written back.

24


-----

Item

No.


Particulars Amount of

sub-items


Amount of main

items


Remarks


Rs. Rs.

1[(g) Cash subsidy, if any, given by

the Government or by any
body corporate established
by any law for the time being
in force or by any other
agency through budgetary
grants, whether given

directly or through any

agency for specified

purposes and the proceeds of
which are reserved for such
purposes.]

Total of Item No. 6 .     .      . Rs.


7. Gross Profit for purposes of bonus
(Item No. 5 minus Item No. 6)


Rs.


2[Explanation.—In sub-item (aa) of Item 3, “approved gratuity fund” has the same meaning

assigned to it in clause (5) of section 2 of the Income-tax Act.]

_Foot-notes—_

(1) If, and to the extent, charged to Profit and Loss Account.

(2) If, and to the extent, credited to Profit and Loss Account.

(3) In the proportion of Indian Gross Profit (Item No. 7) to Total World Gross Profit (as per

Consolidated Profit and Loss Account, adjusted as in Item No. 2 above only).

1. Subs. by Act 23 of 1976, s. 26, for sub-item (g) (w.e.f. 25-9-1975).
2. Explanation inserted by s. 26, ibid. (w.e.f. 25-9-1975).

25


-----

Item

No.


1[THE THIRD SCHEDULE]

[See section 6(d)]

Category of employer Further sums to be deducted


(1) (2) (3)

1. 2[Company, other than a banking  (i) The dividends payable on its preference
company] share capital for the accounting year

calculated at the actual rate at which such
dividends are payable;


(ii) 8.5 per cent. of its paid up equity share

capital as at the commencement of the
accounting year;

(iii) 6 per cent. of its reserves shown in its

balance-sheet as at the commencement of
the accounting year, including any profits
carried forward from the previous

accounting year:

Provided that where the employer is a foreign

company within the meaning of

section 591 of the Companies Act, 1956
(1 of 1956), the total amount to be deduced
under this Item shall be 8.5 per cent. on the
aggregate of the value of the net fixed assets
and the current assets of the company in
India after deducting the amount of its
current liabilities (other than any amount
shown as payable by the company to its
Head Office whether towards any advance
made by the Head Office or otherwise or
any interest paid by the company to its
Head Office) in India.

3[2. Banking company (i) The dividends payable on its preference

share capital for the accounting year
calculated at the rate at which such
dividends are payable;

(ii) 7.5 per cent. of its paid up equity share

capital as at the commencement of the
accounting year;

(iii) 5 per cent. of its reserves shown in its

balance sheet as at the commencement of
the accounting year, including any profits
carried forward from the previous

accounting year;

1. The Second Schedule renumbered as the Third Schedule by Act 66 of 1980, s. 20 (w.e.f. 21-8-1980).

2. Subs. by s. 20, ibid., for “Company” (w.e.f. 21-8-1980).
3. Ins. by s. 20, ibid. (w.e.f. 21-8-1980).

26


-----

Item No. Category of employer Further sums to be deducted

(1) (2) (3)

(iv) any sum which, in respect of the accounting

year, is transferred by it—

(a) to a reserve fund under sub-section (1)

of section 17 of the Banking Regulation
Act, 1949 (10 of 1949); or

(b) to any reserves in India in pursuance of

any direction or advice given by the
Reserve Bank of India.

whichever is higher:

Provided that where the banking company is a

foreign company within the meaning of
section 591 of the Companies Act, 1956
(1 of 1956), the amount to be deducted
under this Item shall be the aggregate of—

(i) the dividends payable to its preference

shareholders for the accounting year at the
rate at which such dividends are payable
on such amount as bears the same
proportion to its total preference share
capital as its total working funds in India
bear to its total world working funds;

(ii) 7.5 per cent. of such amount as bears the

same proportion to its total paid up equity
share capital as its total working funds in
India bear to its total world working funds;

(iii) 5 per cent. of such amount as bears the

same proportion to its total disclosed
reserves as its working funds in India bear
to its total world working funds;

(iv) any sum which, in respect of the accounting

year, is deposited by it with the Reserve
Bank of India under sub-clause (ii) of
clause (b) of  sub-section (2) of section 11
of the Banking Regulation Act, 1949 (10
of 1949), not exceeding the amount
required under the aforesaid provision to
be so deposited.]

3. Corporation (i) 8.5 per cent. of its paid up capital as at the

commencement of the accounting year;

(ii) 6 per cent. of its reserves, if any, shown in

its balance-sheet as at the commencement
of the accounting year, including any
profits carried forward from the previous
accounting year.

27


-----

Item No. Category of employer Further sums to be deducted

(1) (2) (3)

4. Co-operative society (i) 8.5 per cent. of the capital invested by such

society in its establishment as evidenced
from its books of accounts at the
commencement of the accounting year;

(ii) such sum as has been carried forward in

respect of the accounting year to a reserve
fund under any law relating to cooperative societies for the time being in
force.


5. Any other employer not falling
under any of the aforesaid
categories.


(iii) 8.5 per cent. of the capital invested by him

in his establishment as evidenced from his
books of accounts at the commencement
of the accounting year:

Provided that where such employer is a person

to whom Chapter XXIIA of the

Income-tax Act applies, the annuity deposit
payable by him under the provisions of that
Chapter during the accounting year shall
also be deducted:

Provided further that where such employer is a

firm, an amount equal to 25 per cent. of the
gross profits derived by it from the
establishment in respect of the accounting
year after deducting depreciation in

accordance with the provisions of clause
(a) of section 6 by way of remuneration to
all the partners taking part in the conduct of
business of the establishment shall also be
deducted, but where the partnership

agreement, whether oral or written,

provides for the payment of remuneration
to any such partner, and—

(i) the total remuneration payable to all such

partners is less than the said 25 per
cent., the amount payable, subject to a
maximum of forty-eight thousand rupees
to each such partner; or

(ii) the total remuneration payable to all such

partners is higher than the said 25 per cent.,
such percentage, or a sum calculated at the
rate of forty-eight thousand rupees to each
such partner, whichever is less, shall be
deducted under this proviso:

28


-----

Item No. Category of employer Further sums to be deducted

(1) (2) (3)

Provided also that where such employer is an

individual or a Hindu undivided family,—

(i) an amount equal to 25 per cent. of the

gross profits derived by such employer
from the establishment in respect of the
accounting year after deducting

depreciation in accordance with the
provisions of clause (a) of section 6; or

(ii) forty-eight thousand rupees,

whichever is less, by way of remuneration to
such employer, shall also be deducted.


6. Any employer falling under Item No.

1 of Item No. 3 or Item No. 4 or
Item No. 5 and being a licensee
within the meaning of

the Electricity (Supply) Act,

1948        (54 of 1948).


In addition to the sums deductible under any

of the aforesaid Items, such sums as are
required to be appropriated by the
licensee in respect of the accounting
year to a reserve under the Sixth
Schedule to that Act shall also be
deducted.


_Explanation.—The expression “reserves” occurring in column (3) against Item Nos. [1][1(iii), 2(iii)_

and 3(ii)] shall not include any amount set apart for the purpose of—

(i) payment of any direct tax which, according to the balance-sheet, would be payable;

(ii) meeting any depreciation admissible in accordance with the provisions of clause (a) of

section 6;

(iii) payment of dividends which have been declared,

but shall include—

(a) any amount, over and above the amount referred to in clause (i) of this Explanation, set

apart as specific reserve for purpose of payment of any direct tax; and

(b) any amount set apart for meeting any depreciation in excess of the amount admissible in

accordance with the provisions of clause (a) of section 6.

1. Subs. by Act 66 of 1980, s. 20, for “1(iii) and 3(ii)” (w.e.f. 21-8-1980).

29


-----

1[THE FOURTH SCHEDULE


(See sections 15 and 16)


In this Schedule, the total amount of bonus equal to 8. 33 per cent. of the annual salary or wage

payable to all the employees is assumed to be Rs. 1, 04, 167. Accordingly, the maximum bonus to
which all the employees are entitled to be paid (twenty per cent. of the annual salary or wage of all
the employees) would be Rs. 2, 50, 000.


Year Amount equal To sixty per Amount

cent. or sixty-seven        payable as

per cent., as the case may bonus

be, of available surplus

allocable as bonus


Set on or set off of

the year carried

forward


Total set on or set off

carried forward


(1) (2) (3) (4) (5)

Rs. Rs. Rs. Rs. of (year)

1 1,04,167 1,04,167** Nil Nil


2 6,35,000 2,50,000* Set on

2,50,000*


Set on

2,50,000*


2,50,000*
3 2,20,000
(inclusive of
30,000 from
year-2)


Nil Set on

2, 20,000


4 3,75,000 2,50,000* Set on

1,25,000


Set on

2,20,000

1,25,000


(2)

(2)

(2)

(4)

(2)

(4)


5 1,40,000 2,50,000*
(inclusive of
1,10,000 from
year-2)


Nil Set on

1,10,000

1,25,000


6 3,10,000 2,50,000* Set on

60,000


Set on

Nil+ (2)

1,25,000 (4)

60,000 (6)


2,50,000*
7 1,00,000
(inclusive of
1,25,000 from
year-4 and
25,000 from
year-6)


Nil Set on

35,000 (6)


8 Nil

(due to loss)


1,04,167**
(inclusive of
35,000 from
year-6)


Set off

69,167


Set off

69,167 (8)


1. Subs. by Act 66 of 1980, s. 21, for the Third Schedule (w.e.f. 21-8-1980).

30


-----

(1) (2) (3) (4) (5)


9 10,000 1,04,167** Set off

94,167


Set off

69,167

94,167


(8)
(9)


1,04,167**
10 2,15,000

(after setting

off 69,167

from year-8

and 41,666

from year-9)


Nil Set off

52,501 (9)


Notes—



- Maximum


+ The balance of Rs. 1,10,000 set on from year-2 lapses.


**Minimum.]


31


-----

