Chapter IV,
PAYMENT OF BONUS,
Introduction
Outlines a transparent framework for bonus payments in India :

The Code on Wages 2019 represents a landmark in the regulatory framework
governing wages and bonuses in India

In the dynamic landscape of employment and workers' rights, it is essential to
comprehend the intricacies of bonus payments, a crucial component that
significantly impacts the relationship between employers and employees.

This legislation plays a pivotal role in shaping the dynamics of employee
compensation. Today, we'll explore its key provisions, emphasizing how it
influences bonus payments, ensuring fairness in the employer-employee
relationship. Let's dive into the essentials of the Code, understanding its
implications for both employers and employees., nature, performing arts, SEO &
marketing, and teamwork.
Section 26. Eligibility for bonus, etc.

Surplus Bonus:

If the employer has a surplus after paying the minimum
bonus, they must distribute the surplus as a bonus to
employees. This surplus bonus is proportional to the
wages earned by each employee, with a maximum limit of
20% of their wages.

Agreement for Additional Bonus:

Any demand for a bonus beyond the minimum can be
agreed upon by mutual consent between the employer
and employees, but the total bonus (including the
minimum) cannot exceed 20% of the employee's wages.
Section 26. Eligibility for bonus, etc.






Minimum Bonus:
Every employee who has worked for at
least thirty days in a year is entitled to
receive a bonus.
The bonus is calculated at a rate of 8.33%
of the employee's annual wages or ₹100,
whichever is higher.
This bonus must be paid even if the
employer didn't make a profit in the
previous year.
Calculation for Higher Wages:
If an employee's monthly wages exceed
a certain amount set by the government,
the bonus is calculated as if their wages
were equal to that specified amount.
Section 27.
Proportionate
reduction in bonus in
certain cases.




Employee hasn't worked the
entire year:
Bonus usually calculated at 8.33% of
annual salary.
If the calculated bonus is higher
than 8.33% of the salary for the days
worked,
Ensuring Fairness in Bonus
Calculation, This provision ensures
that employees receive a fair bonus,
taking into account their actual
working days in the accounting
year.
Section 28.
Computation of
number of working
days.



Deemed Work Days:
 In certain situations outlined in Section
27, it's assumed the employee has
worked in the establishment.
Inclusive Scenarios:
 Encompasses days of layoff, leave with
salary, work-related absence, and
maternity leave with salary.
Fair Calculations:
 Ensures fairness by including these
days in benefit and work-related
calculations.
Section 29. Disqualification for bonus

Disqualification Criteria:
Employee ineligible for
bonus if dismissed for fraud,
violent behavior, theft,
misappropriation, sabotage,
or convicted of sexual
harassment.
Section 30. Establishments to include departments, undertakings
and branches.
 Unified Establishment Treatment:
 Different departments, undertakings, or branches within an
establishment are considered one entity for bonus
calculations.
 Exception for Separate Accounting:
 If a separate balance-sheet and profit/loss account are
maintained for a specific department, undertaking, or
branch, it is treated independently for bonus computation,
unless it was previously considered part of the main
establishment.
Section 31. Payment of bonus out of allocable surplus.







Bonus Source:
Bonus is paid from the allocable surplus, calculated as 60% (for
banking companies) or 67% (for other establishments) of the
available surplus.
Available surplus is determined according to Section 33.
Audit Clarification:
Audited accounts of companies are generally accepted
without questioning.
Dispute Resolution:
In case of a dispute over bonus amount:
○ The authority notified by the appropriate Government
can request the employer to provide the balance sheet.
○ The authority must not disclose any information from the
balance sheet unless agreed to by the employer.
Section 32. Computation of gross profits.
The gross profits derived by an employer
from an establishment in respect of the
accounting year
For Banking Companies :
Gross profits for banking companies will be calculated as per
the method prescribed by the Central Government.
For Other Establishments :
For establishments other than banking companies, gross
profits will also be calculated as per the method prescribed by
the Central Government.
Section 33 Computation of available surplus.
General Rule:
The available surplus
for any accounting
year is the gross
profits for that year,
minus
the
sums
referred to in section
34.
Provision for
Subsequent Years:
For
accounting
years
starting
after
the
commencement of this Code and subsequent years:
It includes :
 Gross profits for the accounting year after deducting
specified sums.
 An additional amount, calculated as the difference
between:
 Direct tax on the gross profits of the employer for the
immediately preceding accounting year.
 Direct tax on the gross profits for the same
preceding year after deducting the bonus paid or
liable to be paid to employees.
Section 34. Sums deductible from gross
profits.




Depreciation:
Any amount of
depreciation allowable
under Income-tax Act
Section 32 or agricultural
income-tax law, as
applicable.
Direct Tax:
Any direct tax liability of
the employer for the
accounting year
concerning income,
profits, and gains (subject
to Section 35 provisions).
Additional
Prescribed Sums:
 Further deductions
may apply as
prescribed by the
Central Government.

Section 35. Calculation of direct tax payable by the employer.
General Calculation Rules :


Direct tax payable by the employer is calculated based on the rates applicable to the
employer's income for the accounting year.
Notable provisions:
No consideration for:
o Loss carried forward from previous accounting years.
o Arrears of depreciation for succeeding accounting years.
Rebate and Deductions:
Special Cases:


For religious or charitable institutions with taxexempt income, treatment akin to a publicinterest company under the Income-tax Act.
For individuals or Hindu undivided families, tax
calculated assuming the income from the
establishment is their sole income.

No consideration for rebates other than
specific ones (development rebate,
investment allowance, development
allowance, etc.) in the payment of any
direct tax allowed under relevant laws or
Finance Acts for industrial development.
Section 36. Set on and set off of allocable surplus.
 In simpler terms, "set on" means carrying forward the excess
allocable surplus for future bonus payments, and "set off"
means carrying forward any deficiency or minimum bonus
amount for future adjustments. These mechanisms help in
balancing bonus payments over multiple years based on the
financial performance of the company
 S.36(1) Set-on = allocable surplus – 20% wages
 S.36(2) set-off = 8.33% wages - allocable surplus
 Max set-on = 20%
 Set-on and set-off are carried forward to the
succeeding AY upto and inclusive of 4th AY
Section 37. Adjustment of customary or interim bonus against bonus
payable under this Code
If, in any
accounting year:
(a) The employer paid a puja bonus or
customary bonus to employees, or
(b) A portion of the bonus due
under this Code was paid to an
employee before its due date,
Then, the employer can deduct the already paid bonus
amount from the total bonus payable under this Code for
that year. The employee will receive only the remaining
balance
Section 38. Deduction of certain amounts from bonus payable.
If, in a given year, an employee is
found responsible for wrongdoing
resulting in a financial loss for the
employer,
the employer can subtract the
amount of that loss from the
bonus..
Whatever
is
left
after
deducting the loss is what the
employee will receive as their
bonus.
Section 39. Time Limit For Payment Of Bonus
 All bonus amounts under this Code must be
credited to the employee's bank account by the
employer within 8 months from the end of the
accounting year. The appropriate Government
may extend this period up to two years for valid
reasons.
 In case of a bonus dispute, the bonus must be
paid within one month from the date the award
is enforceable or the settlement comes into
operation. If there's a dispute over the higher
rate, the employer must pay 8.33% of the
employee's wages within eight months from the
close of the accounting year.
Section 40. Application of this Chapter to establishments in
public sector in certain cases
 If a public sector establishment, in a given
accounting year, competes with a private sector
establishment by selling goods or services, and
the income from such sales or services is at
least twenty percent of its gross income for that
year, then the rules outlined in this Chapter
apply to the public sector establishment.
Exception : If the aforementioned
condition is not met, the regulations in
this Chapter do not apply to employees
in public sector establishments.
Section 41. Non-applicability of this Chapter
 Employees of the Life Insurance Corporation of India.
 Seamen as defined in the Merchant Shipping Act, 1958.
 Employees registered under the Dock Workers (Regulation of Employment) Act, 1948.
 Employees of Central Government, State Government, or local authorities.
 Employees of specific institutions including the Indian Red Cross Society, universities,
educational institutions, hospitals, etc.
 Employees of the Reserve Bank of India.
 Employees of specified public sector financial institutions.
 Employees of inland water transport establishments operating in other countries.
 Employees of any other establishment exempted by the appropriate Government
based on specific criteria.
THANKYOU!
●
JUEE WAIKAR- 64
●
SAURABH WARIK- 65