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Unit 9: Payment of Bonus Act, 1965

Net profit (P&L a/c) +Add following items Notes

l z Income tax provision for: Bonus to employees, Depreciation, Direct taxes,
l z Bonus paid to employees in respect of previous accounting years
l z The amount, if any, paid to, or provided for payment to, an approved gratuity fund
l z The amount actually paid to employees on their retirement or on termination of their
employment for any reason

l z Donations
l z annuity due
l z Capital expenditure (other than capital expenditure on scientific research)

l z capital losses
l z capital losses (other than losses on sale) of capital assets on which depreciation has been
allowed for income-tax or agricultural income-tax).
l z Losses of, or expenditure relating to, any business situated outside India.
Deduct:

(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 investments 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 (over head) 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.

9.4.2 Computation of Available Surplus [Section 5]

Available surplus = gross profit [derived as per First Schedule or Second Schedule of this Act]
– (minus) Depreciation, investment allowance or development allowance [Section 6] - (minus)
direct taxes payable [Section 7] - (minus) further sums as are specified in respect of the employer
in the Third Schedule of this Act consist of dividend payable (preference shares), reserves and %
of paid up equity share capital [investment].

9.4.3 Computation of Allocable Surplus [Sec. 2(4)]

Allocable surplus= 67% of the available surplus (other than banking companies) or 60% of the
available surplus (banking companies and companies linked with abroad).

Payment of bonus calculated on the allocable surplus which is derived by the above calculation.

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