Useful Points while conducting Audit of Provision for Bonus in India

Provision for Bonus to be made under at the end of year under

“ COMPANIES ACT 1956” though bonus can be paid upto 30th November i.e. within 8 months of expiry of F.Y. (PAYMENT OF BONUS ACT). However under INCOME TAX ACT 1961 bonus expense is admissible on payment basis if same is paid on or before the due date of filing of Income Tax Return, otherwise same will be allowed as deduction in Previous Year in which Bonus is actually paid to employees.

a. POINT AS TO BONUS ACT 1965

1. Act applies to every factory and other establishment in which 20 or > persons are  employed on any day during the accounting year.

2. Employee covered are those receiving wages 10000 or >.

3. Wages include all remuneration + DA, except;

a.   Other allowance

b. Overtime wages

c.   Employer contribution to ESI, PF, EPF or any other law.

4. Minimum bonus is 8.33% of wages (payable by employer even in case of losses).

5. If allocable bonus (after considering amount set off & set on) goes beyond minimum bonus. Employer bound to pay higher bonus but maximum 20%.

6. Where salary or wage of employee exceeds 3500/- , bonus shall be calculated as if salary is 3500/-.

7. Bonus should be paid within period of 8 months from close of accounting year.