Is bonus taxable in india

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Employers pay bonus as an instrument to motivate their employees to work to the best of their capabilities. The Payment of Bonus Act, 1965 provides for the payment of a Statutory Bonus, which is often confused with the incentive bonus paid by employers. Unlike incentive bonus, which is an ex gratia payment, Statutory bonus is a compulsory payment by law. Payment of statutory bonus under the Payment of Bonus Act is not a matter of choice of the employer but rather a matter of right of the employee. All amounts payable to the employee as bonus under the provisions of the Act should be paid in cash. Which means that the employer cannot guise bonus as perquisites or allowances. The Act contemplates that a minimum bonus of 8.33% of the salary or the wage earned by the employee during the accounting year or Rs. 100 whichever is higher should be paid to an employee. Startups and New establishments have been given a respite from payment of bonus for the first five years. In the first five (05) years following the accounting year in which the operations of the new establishment/ startup commence, employer can pay Statutory Bonus only in the years in which the employer derives profits. Example 3: If Bipasha’s Salary is Rs. 15000 than bonus payable to Bipasha shall be = 7000 x 8.33/100 = 583 per month (Rs. 6996/- per year).

This blog discusses the applicability and calculations of Statutory Bonus. Only employees who have worked in an establishment for a period of not less than thirty (30) days in that year shall be eligible to receive bonus. An employee is deemed to have worked in an establishment in any accounting year also on the days on which he/she has been laid off or on leave (with salary) or he/she has been absent due to temporary disablement caused by accident arising out of and in the course of his employment or availing maternity leave.

If during an accounting year an employee is found guilty of misconduct which has resulted in a financial loss to the employer then in such case the employer may deduct the amount of loss suffered from the amount of bonus payable to the employee in respect of that accounting year only and balance if any after such deductions shall be remitted to the employee. Any agreements between the employee and employee regarding the nonpayment of bonus are not valid. Since bonus is paid out of the allocable profits of the establishment, if in a year the allocable surplus exceeds the amount of minimum bonus payable to the employees, the employer should pay a higher bonus. It is pertinent to note that the Act stipulates an upper limit of 20% of the salary or wage earned by the employee during an accounting year for the payment of maximum bonus.

Note: Salary means Basic Salary + Dearness Allowance

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