Gross profit for Bonus Act – the first step is to calculate ‘Gross Profit’, which is calculated as follows :

Gross Profit = Net profit as per P & L account + (Bonus to employees + Depreciation + Direct taxes including provisions + Development rebate + Investment allowance + Bonus paid in respect of previous year + provision in respect of gratuity above the payment made to approved gratuity fund + donations in excess of amount admissible to Income Tax + Capital expenditure to the extent charged to P & L account + Capital losses +Income directly credited to reserves other than capital receipts, profit relating to business out of India and Income of foreign concerns from investment outside India – Expenditure or losses directly debited to reserves other than capital expenditure – proportionate administrative expenses of foreign Head Office allocable to Indian business – Refund of direct taxes – cash subsidy given by Government.

The principle is that all capital receipts / capital expenses / capital profits and losses on foreign business, bonus paid / payable debited to P&L account.  Depreciation should be excluded while arriving at ‘Gross Profit’ of business.

Available Surplus :  is calculated as follows :

Available Surplus = Gross profit – Depreciation as per Income Tax Act – Development Rebate – direct taxes payable at appropriate rates payable on bonus component only – 8.5% dividend on equity – dividend on preference shares – 6% of reserves.

Allocable Surplus : is 60% of the Available Surplus.  This ‘Allocable Surplus’ has to be distributed as bonus among employees in proportion to the salary or wages actually earned by each employee during the year.  However, this is subject to minimum 8.33% and maximum 20%.

Set off and Set on provisions :

It may happen that in some years, the allocable surplus is more than the amount paid to employees as bonus calculating it @ 20%.  Such excess ‘allocable surplus’ is carried forward to next year for calculation purposes.  This is called ‘Set On’.  Similarly, in a particular year, there may be lower ‘allocable surplus’ or no ‘allocable surplus’ even for payment of 8.33% bonus.  Such shortfall is also carried to next year.  This is called ‘Set Off’.  Thus, in every year, ‘allocable surplus’ is calculated.  To this amount, set on from previous years is deducted.  This gives amount which is available for distribution as bonus.  The set off/set on provisions are subject to following:

1. The amount set on is carried forward only upto and inclusive of the fourth accounting year.  If the amount carried forward is not utilised in that period, it lapses ; 
2. similarly, amount set off is carried forward only upto fourth accounting year ;
3. in respect of newly set up establishment, set off and set on provisions do not apply for first five years, in the sixth year, only fifth and sixth year is considered and in seventh year, set off / set on in fifth, sixth and seventh accounting year considered.

Audited accounts cannot be challenged – in any dispute about Bonus, audited accounts of the Company are presumed to be correct and these cannot be challenged.

Imprisonment up to 6 month and or fine up to 1000/-

Forms / Registers / Returns to be maintained / submitted under the Act.