PAYMENT OF BONUS ACT, 1965

PAYMENT OF BONUS ACT, 1965
INTRODUCTION
Payment of annual bonus to the employees started in India on the principle of justice and
equity to keep the workers happy, as a reward for their performance and also to enable the
employers to make profits.
Now it is a well established law after the verdict of the Bombay High Court that the workers
could demand bonus as their right and employers should make extra payments for the workers
for the work done. (Indian Hume Pipe Vs E.H. Nanavati)
The government of India constituted the Bonus Commission in 1961 and on its recommendation
promulgated the Bonus ordinance in 1964 to be replaced by the Bonus Act of 1965.
1. EXTENT
(1) This Act may be called the Payment of Bonus Act, 1965.
(2) It extends to the whole of India.
[Note: The words “except the State of Jammu and Kashmir” omitted by Act 51 of 1970, Sec.2
and Schedule (w.e.f. 1st September,1971).
(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) 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.
2. The Payment of Bonus Act, 1965 is also referred to as the principal Act.
The Payment of Bonus act was amended in the year 1977 which is as under;
1. SHORT TITLE AND COMMENCEMENT
(1) This Act may be called the Payment of Bonus (Amendment) Act, 1977.
(2) It shall come into force on the third day of September, 1977.
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2. BASIC CONCEPTS
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 para. (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 -
In relation to an employer, being a company [(Note: Ins. by Act 66 of 1980 (w.e.f. 21st
August,1980) (other than a banking company)] which has not made the arrangements
prescribed under the Income-tax Act for the declaration and payment within Indian of the
dividends payable out of its profits in accordance with the provisions of Sec.194 of that
Act, sixty-seven per cent of the available surplus in an accounting year.
(5) In any other case, sixty per cent of such available surplus ; (Note: Certain words omitted
by Act 23 of 1976, Sec.4 (w.e.f. 25th September, 1975).
(6) “Available surplus” means the available surplus computed under Sec.5.
(7) “Award” means an interim or a final determination of any industrial dispute or of any
question relating thereto ny 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 Sec.
10-A of that Act or under that law.
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(8) “Banking company” means a banking company as defined in Sec.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 Bank) Act, 1959 (38 of 1959), and
any other banking institution which may be notified in this behalf by the Central
Government.
(9) “Company” means any company as defined in Sec.3 of the Companies Act, 1956 (1 of
1956), and includes a foreign company within the meaning of Sec.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-operative 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 tax 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 [(Note: Subs. by Act No.67 of 1985, Sec.2, for the words “one thousand and
six hundred rupees” (w.e.f. 7th November, (1985)) two thousand and five hundred 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 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 Cl. (f) of sub-section (1) of Sec.7 of the Factories Act, 1948, the person named;
and
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(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 section” 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 Sec. 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 Cl. (m) of Sec.2 of the Factories Act, 1948
(63 of 1948).
(18) “Gross profits” means the gross profits calculated under Sec.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 overtime
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 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 such of light, water, medical attendance
or other amenity or of any service of any confessional supply of food grains or other
articles;
(iii) Any traveling 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 employees under any law for the time being in force ;
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(vi) Any retrenchment compensation or any gratuity or other retirement benefit payable
to the employees or any ex gratia payment made to him ;
(vii) Any commission payable to the employee.
(viii) 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 form part of the salary or
wage of such employees.
(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 departments 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 breach shall be treated as 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.
NOTES
When there is integral link and unity of management between the two division of a company
it cannot be said as a separate undertaking although it is 60 miles away from one division.
Gawlior Rayon Silk Mfg. Co. v. Industrial Tribunal 1975 Lab. I.C. 820.
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.
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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 Sec.6.
(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.]
NOTES
The burden of proving that the depreciation claimed is the correct amount admissible under
Section 32 (1) of Income-tax Act lies on the party claiming such amount. Workmen of National
and Grindlays Bank Ltd. v. National and Grindlays Bank Ltd., AIR 1976 S.C. 611.
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 subsection
(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 of his employees under a
settlement or an award or agreement made before the 29th 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 that date) continue
to be such notional normal depreciation;
(b) Any amount by way of development rebate or investment allowance or development
allowance] which the employer is entitled to deduction from his income under the Incometax
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 the year ;
(d) Such further sums as are specified in respect of the employer in the Act.
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7. CALCULATION OF DIRECT TAX PAYABLE BY THE EMPLOYER
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 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 subsection
(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 The Orient Tavern 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 Income-tax Act, then, with respect The Orient Tavern 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 an 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 any rebate on such income is 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 other than development rebate or credit or relief
or deduction (not hereinafter mentioned in this section) in the payment of any direct tax
allowed under nay 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.
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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.
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 or wage earned by the employee during the accounting year or one hundred rupees,
whichever is higher, whether or not the employer has any allocable surplus in the accounting
year :
Provided that there an employee has not employed fifteen years of age at the beginning of the
accounting year, the provision of this section shall have effect in relation to such employee as
if for the words “one hundred rupees”, the words “sixty rupees” were substituted.
11. PAYMENT OF MAXIMUM BONUS
(1) Where in respect of any accounting year referred to in Sec.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 Sec.15 shall be taken into account in accordance with the
provisions of that section.
12. CALCULATION OF BONUS WITH RESPECT TO CERTAIN EMPLOYEES
Where the salary or wage of an employee exceeds one thousand and six hundred rupees per
mensem, the bonus payable to such employee under Sec.10, or as the case may be, under Sec.11,
shall be calculated as if his salary or wage were one thousand and six hundred rupees per
mensem.
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
COMMERCIAL & INDUSTRIAL LAWS A 277
than 8.33 per cent of his salary or wage for the days he has worked in that accounting year,
shall be proportionately reduced.
NOTES
Working days - Words ‘working day in any accounting year’ - meaning of - factory working in
a particular season only and not during the whole year in such a case the ‘working days’ only
mean those days of the year during which the employee concerned is actually allowed to work.
(Shakkar Mills Mazdoor Sangh v. Gwalior Sugar Co. Ltd., 1985 JLJ 294 = AIR 1985 SC 758).
14. COMPUTATION OF NUMBER OF WORKING DAYS
For the purposes of Sec. 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.
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 Sec.11, the, 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 utilized 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 or sufficient amount carried
forward and set on under sub-section (1) which could be utilized 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.
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(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
(1) Where an establishment is 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-section (1-A), (1-B) and (1-C).
(1-A) In the first five accounting years following the accounting year in which the employee
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 Sec.15.
(1-B) 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 Sec.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
[(Note: Subs. by Act 66 of 1980, (w.e.f. 25th September,1975) 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 year ;
(ii) For the seventh accounting year -
Set-on or set-off, as the case may be, shall be made in the manner illustrated the
[(Note: Subs. by Act 66 of 1980, (w.e.f. 25th September,1975) Fourth Schedule] taking
into account the excess of 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.
(1-C) 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 Sec.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.
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Explanation II - For the purpose of sub-section (1-A), an employer shall not be deemed to 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 (1-A), (1-B) and (1-C) sale of the goods
produced or manufactured during the course of the trail running of any factory or of the
prospecting stage 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 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 [(Note: Subs. by Act 23 of 1976, (w.e.f. 25th September, 1975) sub-sections
(1), (1-A), (1-B) and (1-C) 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.