Payment of Bonus Act - India

Topics: Generally Accepted Accounting Principles, Employment, Income tax in the United States Pages: 49 (11039 words) Published: April 10, 2013
Learning Objectives
In this Chapter, the students will understand the♦ Applicability and non-applicability of the Act to certain classes of establishments and employees
♦ Computation of profits for the purpose of calculation of allocable and available surplus for the purpose of determination of bonus
♦ Set on and Set off of allocable surplus
♦ Percentage limits for minimum and maximum bonus

Other miscellaneous provisions

3.1 Introduction
This is an Act intended to provide for the payment of bonus to persons employed in certain establishments on the basis of profits or on the basis of production or productivity and for matters connected therewith. It came into force from September 25, 1965. It extends to the whole of India. Unless it is provided otherwise in the Act, it shall apply to : (a) every factory, and (b) every other establishment in which 20 or more persons are employed on any day during an accounting year. But the appropriate Government may apply the provisions of the Act with effect from such accounting year as may be notified in the Gazette to any establishment or class of establishments [including an establishment as defined by Section 2(m) (ii) of the Factories Act,1948] employing persons less than 20 but not less than 10 in number [Proviso to Section 1(3)].

An establishment in which 20 or more persons are employed on any day during an accounting year, must continue to be governed by this Act, in spite of the fact that the number of persons employed therein falls below 20.

A part-time employee is also an employee for the purpose of calculating the number of employees i.e., 20 or more under Section 1(3)(b).[ Automobile Karamchari Sangh Vs. Industrial Tribunal,(1976)38 FLR 268(All)]

© The Institute of Chartered Accountants of India

The Payment of Bonus Act,1965

3.2 Act not to Apply to certain classes of Employees (Section 32) The following are the categories of employees who are excluded from the operation of the Act: (i)

Employees employed by the Life Insurance Corporation of India.


Seamen as defined under Section 3(42) of the Merchant Shipping Act, 1958.

(iii) Employees registered or listed under any scheme made under the Dock Workers (Regulation of Employment) Act, 1948 and employed by the 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.


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.


Employees employed by the Reserve Bank of India.

(vii) 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; (c) the Deposits Insurance Corporation; (d) the Agricultural Refinance Corporation; (e) the Unit Trust of India; (f) the Industrial Development Bank of India; (g) any other Financial Institution (other than a banking company) being an establishment in public sector, which the Central Government may, by notification in the Official Gazette; specify; while so specifying the Central Government shall have regard to its capital structure, its objectives and the nature and extent of financial assistance or any concessions given to it by the Government and any other relevant factor.

(viii) Employees employed by inland water transport establishment operating on routes passing through any other country.
Besides the above, if the Appropriate Government is of the opinion that it will be in the public interest, having...
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