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Unit 9: Payment of Bonus Act, 1965

Allocable Surplus: Allocable surplus means in relation to an employer, being a company (other Notes
than a banking company) which has not made arrangements prescibed under Income Tax Act for
the declaration on payment of dividend in accordance with section 194 of that Act, 67% of such
available surplus in an accounting year.
Bonus: A bonus payment is usually made to employees in addition to their base salary as part
of their wages.

Direct Tax: A tax, such as income tax, that is levied on the income or profits of the person who
pays it, rather than on goods or services.

Disqualification: The action of disqualifying or the state of being disqualified.
Gross Profits: Gross profit or sales profit is the difference between revenue and the cost of
making a product or providing a service, before deducting overhead, payroll, taxation, and
interest payments.

Inspectors: An official employed to ensure that official regulations are obeyed, esp. in public
services.

Net profit: The profits after expenses not included in the calculation of gross profit have been
paid.

Offences: A breach of a law or rule; an illegal Act.
Rights: Rights are legal, social, or ethical principles of freedom or entitlement; that is, rights are
the fundamental normative rules about what is allowed of people or owed to people, according
to some legal system, social convention, or ethical theory.

9.8 Review Questions

1. Who is entitled to bonus under the Payment of Bonus Act, 1965?

2. Explain the meaning of “Accounting year” under the Payment of Bonus Act, 1965.
3. Explain the meaning of ‘Allocable Surplus’ and ‘Available Surplus’ stated in the Payment
of Bonus Act, 1965.
4. X, a temporary employee drawing a salary of ` 3,000 per month, in an establishment to
which the Payment of Bonus Act, 1965 applies was prevented by the employers from
working in the establishment for two months during the financial year 2001-2002, pending
certain inquiry. Since there were no adverse findings ‘X’ was re-instated in service, later,
when the bonus was to be paid to other employees, the employers refuse to pay bonus to
‘X’, even though he has worked for the remaining ten months in the year. Referring to the
provisions of the Payment of Bonus Act, 1965 examine the validity of employer’s refusal to
pay bonus to ‘X’.

5. The employer is a banking company. Point out so as to what items are required to be added
to the “Net Profit” by the employer for calculating the “Gross Profit” in accordance with
the First Schedule of the Payment of Bonus Act, 1965.
6. Prakash Chandra is working as a salesman in a company on salary basis. The following
payments were made to him by the company during the previous financial year:
(a) overtime allowance,
(b) dearness allowance
(c) commission on sales

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