LexThe PAYMENT OF BONUS ACT, 1965
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12(2) The Payment of Bonus Rules, 1975
INDEX
THE PAYMENT OF BONUS ACT, 1965
Section Description
Introduction
1. Short title, extent and application
2. Definitions
3. Establishments to include departments, undertaki ngs and
branches
4. Computation of gross profits
5. Computation of available surplus
6. Sums deductible from gross profits
7. Calculation of direct tax payable by the employe r
8. Eligibility for bonus
9. Disqualification for bonus
10. Payment of minimum bonus
11. Payment of maximum bonus
12. Calculation of bonus with respect to certain em ployees
13. Proportionate reduction in bonus in certain cas es
14. Computation of number of working days
15. Set on and set off of allocable surplus
16. Special provisions with respect to certain esta blishments
17. Adjustment of customary or interim bonus agains t bonus
payable under the Act
18. Deduction of certain amounts from bonus payable under the
Act
19. Time-limit for payment of bonus
20. Application of Act to establishments in public sector in
certain cases
21. Recovery of bonus due from an employer
22. Reference of disputes under the Act
12(2) The Payment of Bonus Rules, 1975
Section Description
23. Presumption about accuracy of balance-sheet and profit
and loss account of corporations and companies
24. Audited accounts of banking companies not to be
questioned
25. Audit of accounts of employers, not being corpo rations or
companies
26. Maintenance of registers, records, etc.
27. Inspectors
28. Penalty
29. Offences by companies
30. Cognizance of offences
31. Protection of action taken under the Act
31 A. Special provision with respect to payment of bonus linked
with production or productivity
32. Act not to apply to certain classes of employee s
33. [Repealed]
34. Effect of laws and agreements inconsistence wit h the Act
35. Saving
36. Power of exemption
37. [Repealed]
38. Power to make rules
39. Application of certain laws not barred
40. Repeal and saving
THE FIRST SCHEDULE
THE SECOND SCHEDULE
THE THIRD SCHEDULE
THE FOURTH SCHEDULE
12(2) The Payment of Bonus Rules, 1975
THE PAYMENT OF BONUS ACT, 1965
INTRODUCTION
The practice of paying bonus in India appears to h ave originated during First
World War when certain textile mills granted 10% of wages as war bonus to their
workers in 1917. In certain cases of industrial dis putes demand for payment of
bonus was also included. In 1950, the Full Bench of the Labour Appellate
Tribunal evolved a formula for determination of bon us, A plea was made to raise
that formula in 1959. At the second and third meeti ngs of the Eighteenth Session
of Standing Labour Committee (G.O.I.) held in New D elhi in March/ April 1960, it
was agreed that a Commission be appointed to go into the question of bonus and
evolve suitable norms. A Tripartite Commission was set up by the Government of
India to consider in a comprehensive manner, the qu estion of payment of bonus
based on profits to employees employed in establish ments and to make
recommendations to the Government. The Government o f India accepted the
recommendations of the Commission subject to certai n modifications. To
implement these recommendations the Payment of Bonu s Ordinance, 1965, was
promulgated on 29th May, 1965. To replace the said Ordinance the Payment of
Bonus Bill was introduced in the Parliament.
STATEMENT OF OBJECT AND REASONS
A Tripartite Commission was set by the Government of India by their
resolution No. WB-20(9)/61, dated 6th December, 196 1, to consider in a
comprehensive manner, the question of payment of bo nus based on profits to
employees employed in establishments and to make re commendations to the
Government. The Commission’s Report containing thei r recommendations was
received by the Government on 24th January, 1964. I n their Resolution No. WB-
20 (3)/64, dated the 2nd September, 1964, the Gover nment announced
acceptance of the Commission’s recommendations subject to a few modifications
as were mentioned therein. With a view to implement the recommendations of
the Commission as accepted by the Government, the P ayment of Bonus
Ordinance, 1965, was promulgated on 29th May, 1965. The object of the Bill is to
replace the said Ordinance.
The notes on clauses explain the various provisions of the Bill.
12(2) The Payment of Bonus Rules, 1975
ACT 21 OF 1965
The Payment of Bonus Bill having been passed by bo th the Houses of
Parliament received the assent of the President on 25th September, 1965. It
came on the Statute Book as THE PAYMENT OF BONUS AC T, 1965 (21 of
1965).
LIST OF AMENDING ACTS
1. The Insurance (Amendment) Act, 1968 (62 of 1968 ).
2. The Payment of Bonus (Amendment) Act, 1969 (8 o f 1969).
3. The Central Labour Laws (Extension to Jammu and Kashmir) Act, 1970 (51
of 1970).
4. The Payment of Bonus (Amendment) Act, 1972 (68 of 1972).
5. The Payment of Bonus (Amendment) Act, 1973 (39 of 1973).
6. The Payment of Bonus (Second Amendment) Act, 19 73 (55 of 1973).
7. The Payment of Bonus (Amendment) Act, 1974 (42 of 1974).
8. The Payment of Bonus (Amendment) Act, 1976 (23 of 1976).
9. The Payment of Bonus (Amendment) Act, 1977 (43 of 1977) [as amended by
the Payment of Bonus (Amendment) Act, 1978 (48 of 1 978) and the Payment
of Bonus (Amendment) Act, 1980 (5 of 1980)].
10. The Payment of Bonus (Second Amendment) Act, 1 980 (66 of 1980).
11. The National Bank for Agriculture and Rural De velopment Act, 1981 (61 of
1981).
12. The Payment of Bonus (Amendment) Act, 1985 (30 of 1985).
13. The Payment of Bonus (Second Amendment) Act, 1 985 (67 of 1985).
14. The National Housing Bank Act, 1987 (53 of 1987).
15. The Small Industries Development Bank of India Act, 1989 (39 of 1989).
16. The Payment of Bonus (Amendment) Act, 1995 (34 of 1995).
12(2) The Payment of Bonus Rules, 1975
THE PAYMENT OF BONUS ACT, 1965
(21 of 1965) 1
[25th September, 1965]
2[An Act to provide far the payment of bonus to pers ons employed in certain
establishments on the basis of profits or on the basis of production or productivity
and for matters connected therewith.]
be it enacted by Parliament in the Sixteenth Year of the Republic of India as
follows:—
1. Short title, extent and application.—
(1) This Act may be called the Payment of Bonus Act, 1965.
(2) It extends to the whole of India
3[***].
(3) Save as otherwise provided in this Act, it shall apply to—
(a) every factory; and
(b) every other establishment in which twenty or m ore persons are
employed on any day during an accounting year:
4[Provided that the appropriate Government may, afte r giving not less than
two months’ notice of its intention so to do, by no tification in the Official
Gazette, apply the provisions of this Act with effect from such accounting year
as may be specified in the notification, to any est ablishment or class of
establishments [including an establishment being a factory within the
meaning of sub-clause (ii) of clause (m) of section 2 of the Factories Act,
1948 (63 of 1948)] employing such number of persons less than twenty as
may be specified in the notification; so, however, that the number of persons
so specified shall in no case be less than ten.]
(4) Save as otherwise provided in this Act, the pro visions of this Act shall, in
relation to a factory or other establishment to whi ch this Act applies, have
1 The Act has been extended to Goa, Daman and Diu by Act 6 of 1977, sec. 2 and Sch.
2 Subs, by Act 23 of 1976, sec. 2, for the long title (w.r.e.f. 25-9-1975).
3 The words “except the State of Jammu and Kashmir” omi tted by Act 51 of 1970, sec. 2 and
Sch. (w,e.f. 1-9-1971).
4 Ins. by Act 23 of 1976, sec. 3 (w.r.e.f. 25-9-1975).
12(2) The Payment of Bonus Rules, 1975
effect in respect of the accounting year commencing on any day in the
year 1964 and in respect of every subsequent accounting year:
1[Provided that in relation to the State of Jammu an d Kashmir, the reference
to the accounting year commencing on any day in the year 1964 and every
subsequent accounting year shall be construed as re ference to the
accounting year commencing on any day in the year 1 968 and every
subsequent accounting year:]
2[Provided further that when the provisions of this Act have been made
applicable to any establishment or class of establi shments by the issue of a
notification under the proviso to sub-section (3), the reference to the
accounting year commencing on any day in the year 1 964 and every
subsequent accounting year or, as the case may be, the reference to the
accounting year commencing on any day in the year 1 968 and every
subsequent accounting year, shall, in relation to s uch establishment or class
of establishments, be construed as a reference to t he accounting year
specified in such notification and every subsequent accounting year.]
(5) An establishment to which this Act applies 3[***] shall continue to be
governed by this Act notwithstanding that the numbe r of persons
employed therein falls below twenty 4[or, as the case may be, the number
specified in the notification issued under the proviso to sub-section (3)].
2. Definitions.— In this Act, unless the context otherwise requires,—
(1) “accounting year” means—
(i) in relation to a corporation, the year ending on the day on which the
books and accounts of the corporation are to be closed and balanced;
(ii) in relation to a company, the period in respe ct of which any profit and
loss account of the company laid before it in annua l general meeting
is made up, whether that period is a year or not;
(iii) in any other case—
(a) the year commencing on the 1st day of April; or
1 Added by Act 51 of 1970, sec. 2 and Sch- (w.e.f. 1-9 -1971).
2 Ins. by Act 23 of 1976, sec. 3 (w.r.e.f. 25-9-1975).
3 The words “under clause (b) of sub-section (3)” omitt ed by Act 23 of 1976, sec. 3 (w.r.e.f. 25-9-
1975).
4 Added by Act 23 of 1976, sec. 3 (w.r.e.f. 25-9-1975 ).
12(2) The Payment of Bonus Rules, 1975
(b) if the accounts of an establishment maintained by the employer
thereof are closed and balanced on any day other th an the 31st
day of March, then, at the option of the employer, the year ending
on the day or which its accounts are so closed and balanced:
Provided that an option once exercised by the emplo yer under paragraph (b)
of this sub-clause shall not again be exercised exc ept with the previous
permission in writing of the prescribed authority a nd upon such conditions as
that authority may think fit;
(2) “agricultural income” shall have the same meaning as in the Income-
tax Act;
(3) “agricultural income-tax law” means any law for the time being in force
relating to the levy of tax on agricultural income;
(4) “allocable surplus” means—
(a) in relation to an employer, being a company
1[(other than a banking
company)] which has not made the arrangement prescr ibed under the
Income-tax Act for the declaration and payment with in India of the
dividends payable out of its profits in accordance with the provisions
of section 194 of that Act, sixty-seven per cent of the available surplus
in an accounting year;
(b) in any other case, sixty per cent of such available surplus;
2[***]
(5) “appropriate Government” means—
(i) in relation to an establishment in respect of which the appropriate
Government under the Industrial Disputes Act, 1947 (14 of 1947), is
the Central Government, the Central Government;
(ii) in relation to any other establishment, the G overnment of the State in
which that other establishment is situate;
(6) “available surplus” means the available surplus computed under section
5;
(7) “award” means an interim or a final determination of any i ndustrial
dispute or of any question relating thereto by any Labour Court, Industrial
Tribunal or National Tribunal constituted under the Industrial Disputes
Act, 1947 (14 of 1947), or by any other authority c onstituted under any
1 Omitted by Act 23 of 1976, sec. 4 (w.r.e.f. 25-9-1 975) and ins. by Act 66 of 1980, sec. 2
(w.r.e.f. 21-8-1980).
2 Certain words omitted by Act 23 of 1976, sec. 4 (w.r .e.f. 25-9-1975).
12(2) The Payment of Bonus Rules, 1975
corresponding law relating to investigation and set tlement of industrial
disputes in force in a State and includes an arbitr ation award made under
section 10A of that Act or under that law;
(8) “banking company” means a banking company as defined in section 5
of the Banking Companies Act, 1949 (10 of 1949), an d includes the State
Bank of India, any subsidiary bank as defined in th e State Bank of India
(Subsidiary Banks) Act, 1959 (38 of 1959), 1[any corresponding new bank
specified in the First Schedule to the Banking Comp anies (Acquisition
and Transfer of Undertakings) Act, 1970 (5 of 1970) , 2[any corresponding
new bank constituted under section 3 of the Banking Companies
(Acquisition and Transfer of Undertakings) Act, 198 0 (40 of 1980),] any
co-operative bank as defined in clause (iii) of sec tion 2 of the Reserve
Bank of India Act, 1934 (2 of 1934),] and any other banking institution
which may be notified in this behalf by the Central Government;
(9) “company” means any company as defined is section 3 of the
Companies Act, 1956 (1 of 1956), and includes a for eign company within
the meaning of section 591 of that Act;
(10) “co-operative society” means a society registered or deemed to be
registered under the Co-operative Societies Act, 19 12 (2 of 1912), or any
other law for the time being in force in any State relating to co-operating
societies;
(11) “corporation” means any body corporate established by or under a ny
Central, Provincial or State Act but does not inclu de a company or a co-
operative society;
(12) “direct tax” means—
(a) any tax chargeable under—
(i) the Income-tax Act;
(ii) the Super Profits Tax Act, 1963 (14 of 1963);
(iii) the Companies (Profits) Surtax Act, 1964 (7 of 1964);
(iv) the agricultural income-tax law; and
(b) any other tax which, having regard to its natur e or incidence, may be
declared by the Central Government, by notification in the Official
Gazette, to be a direct tax for the purposes of this Act;
1 Ins. by Act 23 of 1976, sec. 4 (w.r.e.f. 25-9-1975).
2 Ins- by Act 66 of 1980, sec. 2 (w.r.e.f. 21-8-1980).
12(2) The Payment of Bonus Rules, 1975
(13) “employee” means any person (other than an apprentice) employ ed on
a salary or wage not exceeding 1[ten thousand rupees] per mensem in
any industry to do any skilled or unskilled manual, supervisory,
managerial, administrative, technical or clerical w ork for hire or reward,
whether the terms of employment be express or implied;
(14) “employer” includes—
(i) in relation to an establishment which is a fac tory, the owner or
occupier of the factory, including the agent of suc h owner or occupier,
the legal representative of a deceased owner or occupier and where a
person has been named as a manager of the factory u nder clause (f)
of sub-section (1) of section 7 of the Factories Ac t, 1948 (63 of 1948),
the person so named; and (ii) in relation to any ot her establishment,
the person who, or the authority which, has the ult imate control over
the affairs of the establishment and where the said affairs are
entrusted to a manager, managing director or managi ng agent, such
manager, managing director or managing agent;
(15) “establishment in private sector” means any establishment other than
an establishment in public sector;
(16)“establishment in public sector” means an establishment owned,
controlled or managed by—
(a) a Government company as defined in section 617 of the Companies
Act, 1956 (1 of 1956);
(b) a corporation in which not less than forty per cent, of its capital is held
(whether singly or taken together) by—
(i) the Government; or
(ii) the Reserve Bank of India; or
(iii) a corporation owned by the Government or the Reserve Bank of
India;
(17) “factory” shall have the same meaning as in clause (m) of se ction 2 of
the Factories Act, 1948 (63 of 1948);
(18) “gross profits” means the gross profits calculated under section 4;
(19) “Income-tax Act” means the Income-tax Act, 1961, (43 of 1961);
1 Subs. b Act 45 of 2007, sec. 2, for "three thousand and five hundred rupees" (w.e.r.f. 1-4-
2006). Earlier the words "three thousand and five hun dred rupees" were substituted by act 34
of 1995, sec. 2, for "two thousand and five hundred rup ees" (w.e.r.f. 1-4-1993). Earlier to that
the words "two thousand and six hundred rupees" (w.r.e.f. 7-11-1985).
12(2) The Payment of Bonus Rules, 1975
(20) “prescribed” means prescribed by rules made under this Act;
(21) “salary or wage” means all remuneration (other than remuneration in
respect of over-time work) capable of being express ed in terms of money,
which would, if the terms of employment, express or implied, were
fulfilled, be payable to an employee in respect of his employment or of
work done in such employment and includes dearness allowance (that is
to say, all cash payments, by whatever name called, paid to an employee
on account of a rise in the cost of living), but does not include—
(i) any other allowance which the employee is for the time being entitled
to;
(ii) the value of any house accommodation or of su pply of light, water,
medical attendance or other amenity or of any servi ce or of any
concessional supply of foodgrains or other articles;
(iii) any travelling concession;
(iv) any bonus (including incentive, production and attendance bonus);
(v) any contribution paid or payable by the employe r to any pension fund
or provident fund or for the benefit of the employe e under any law for
the time being in force;
(vi) any retrenchment compensation or any gratuity or other retirement
benefit payable to the employee or any ex gratia payment made to
him;
(vii) any commission payable to the employee.
Explanation.— Where an employee is given in lieu of the whole or part of the
salary or wage payable to him, free food allowance or free food by his employer,
such food allowance or the value of such food shall , for the purpose of this
clause, be deemed to form part of the salary or wage of such employee;
(22) words and expressions used but not defined in this Act and defined in
the Industrial Disputes Act, 1947 (14 of 1947), sha ll have the meanings
respectively assigned to them in that Act.
(i) Employees of State Boards are entitled to bon us; Orissa State Housing
Board v. D. Nayak., (1989) 2 LLN 241 (Ori).
(ii) A co-operative bank is a banking company; Vellore Central Co-op, Bank Ltd.
v. Industrial Tribunal, (1989) 58 FLR 924 (Mad).
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12(2) The Payment of Bonus Rules, 1975
(iii) Lay-off compensation is included in the term of “salary” or “wages”; Mohan
Kumar v. Deputy Labour Commissioner, (1991) 62 FLR 903 (Ker).
(iv) When wages are revised, the management has to pay bonus on arrears;
Muntbai Kamgar Union v. Indian Tool Mfrs. Ltd., (1981) 1 LLN 391 (Bom).
(v) Dearness allowance and city compensatory allowa nce are included in the
definition of “salary” or “wages” under section 1 (21) of the Act; S.
Krishnamurthy v. Presiding Officer, labour Court, (1986) 55 FLR 535.
(vi) Dearness allowance is a part and parcel of wag es; Scindia Navigation Co.
Ltd. v. Scindia Employees Union, (1983) 2 LLN 63.
(vii)Overtime allowance does not form part of “wage s”; Associated Cement Co.
Ltd. v. Their Workmen, AIR 1959 SC 925.
(viii) Retaining allowance comes within the purview of section 2 (21); Chalthum
Vidyut Sehkari Udyog v. Government Labour Officer, AIR 1981 SC 905.
(ix) Remuneration in case of overtime work and comm ission payable to
employees are excluded from the definition of “sala ry” or “wages”; All India
Voltas & Volpart Employees’ federation v. Voltas Ltd., 1973 Lab 1C 645.
3. Establishments to include departments, undertaki ngs and branches.—
Where an establishment consists of different depart ments or undertakings or
has branches, whether situated in the same place or in different places, all
such departments or undertakings or branches shall be treated as parts of
the same establishment for the purpose of computati on of bonus under this
Act:
Provided that where for any accounting year a separ ate balance-sheet and
profit and loss account are prepared and maintained in respect of any such
department or undertaking or branch, then, such dep artment or undertaking
or branch shall be treated as a separate establishm ent for the purpose of
computation of bonus, under this Act for that year, unless such department or
undertaking or branch was, immediately before the c ommencement of that
accounting year treated as part of the establishmen t for the purpose of
computation of bonus.
Branches of an establishment are to be treated as p art of the same
establishment ior the purpose of computation of bon us. However, where in an
accounting year, a separate-balance sheet is mainta ined in respect of any
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12(2) The Payment of Bonus Rules, 1975
branch then such branch shall be treated as a separ ate establishment;
Workmen, Somaiya Organnics (India) Ltd. v. Somaiya Organics (India) Ltd., 1981
Lab IC 363 (All).
1[4. Computation of gross profits.— The gross profits derived by an employer
from an establishment in respect of the accounting year shall—
(a) in the case of a banking company, be calculate d in the manner specified
in the First Schedule;
(b) in any other case, be calculated in the manner specified in the Second
Schedule.]
5. Computation of available surplus.— The available surplus in respect of any
accounting year shall be the gross profits for that year after deducting
therefrom the sums referred to in section 6:
2 [Provided that the available surplus in respect of the accounting year
commencing on any day in the year 1968 and in respe ct of every subsequent
accounting year shall be the aggregate of—
(a) the gross profits for that accounting year afte r deducting therefrom the
sums referred to in section 6; and
(b) an amount equal to the difference between—
(i) the direct tax, calculated in accordance with the provisions of section
7, in respect of an amount equal to the gross profi ts of the employer
for the immediately preceding accounting year; and
(ii) the direct tax, calculated in accordance with the provisions of section
7, in respect of an amount equal to the gross profi ts of the employer
for such preceding accounting year after deducting therefrom the
amount of bonus which the employer has paid or is l iable to pay to his
employees in accordance with the provisions of this Act for that year.]
6. Sums deductible from gross profits.— The following sums shall be
deducted from the gross profits as prior charges, namely:—
(a) any amount by way of depreciation admissible in accordance with the
provisions of sub-section (1) of section 32 of the Income-tax Act, or in
1 Subs, by Act 66 of 1980, sec. 3, for section 4 (w.e.f. 21-8-1980).
2 Added by Act 8 of 1969, sec. 2 (w.e.f. 26-3-1969).
12(2) The Payment of Bonus Rules, 1975
accordance with the provisions of the agricultural income-tax law, as the
case may be:
Provided that where an employer has been paying bo nus to his
employees under a settlement or an award or agreeme nt made before
the 29th May, 1965, and subsisting on that date aft er deducting from the
gross profits notional normal depreciation, then, t he amount of
depreciation to be deducted under this clause shall , at the option of such
employer (such option to be exercised once and with in one year from that
date) continue to be such notional normal depreciation;
(b) any amount by way of 1[development rebate or investment allowance or
development allowance] which the employer is entitl ed to deduct from his
income under the income-tax Act;
(c) subject to the provisions of section 7, any dir ect tax which the employer is
liable to pay for the accounting year in respect of his income, profits and
gains during that year;
(d) such further sums as are specified in respect o f the employer in the
2[Third Schedule].
(i) All direct taxes for the time being in force h ave to be deducted from the gross
profits as prior charges in order to ascertain the “available surplus” for
purpose of bonus; 1975 LLR Bom 1339.
(ii) Bonus paid to trainees (not apprentices) is ad missible deduction under the
Income-tax Act; Textool Co Ltd. v. Income-Tax Officer, (1984) 9 ITD 820
(Mad),
7. Calculation of direct tax payable by the employ er.—
3[Any direct tax
payable by the employer] for any accounting year sh all, subject to the
following provisions, be calculated at the rates applicable to the income of the
employer for that year, namely:—
(a) in calculating such tax no account shall be taken of—
1 Subs, by Act 66 of 1980, sec, 4, for “development reb ate or development allowance” (w.e.f. 21-
8-1980).
2 Subs, by Act 66 of 1980, sec. 4, for “Second Schedule” (w.r.e.f. 21-8-1980).
3 Subs, by Acl 8 of 1969, sec. 3, for “For the purpose of clause (c) of section 6, any direct tax
payable by the employer” (w.e.f. 26-3-1969).
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12(2) The Payment of Bonus Rules, 1975
(i) any loss incurred by the employer in respect o f any previous
accounting year and carried forward under any law f or the time being
in force relating to direct taxes;
(ii) any arrears of depreciation which the employer is entitled to add to
the amount of the allowance for depreciation for an y following
accounting year or years under sub-section (2) of s ection 32 of the
Income-tax Act;
(iii) any exemption conferred on the employer under section 84 of the
Income-tax Act or of any deduction to which he is e ntitled under sub-
section (1) of section 101 of that Act, as in force immediately before
the commencement of the Finance Act, 1965 (10 of 1965);
(b) where the employer is a religious or a charitab le institution to which
the provisions of section 32 do not apply and the w hole or any part of
its income is exempt from tax under the Income-tax Act, then, with
respect to the income so exempted, such institution shall be treated
as if it were a company in which the public are sub stantially interested
within the meaning of that Act;
(c) where the employer is individual or a Hindu Und ivided Family, the tax
payable by such employer under the Income-tax Act s hall be
calculated on the basis that the income derived by him from the
establishment is his only income;
(d) where the income of any employer includes any p rofits and gains
derived from the export of any goods or merchandise out of India and
any rebate on such income is allowed under any law for the time
being in force relating to direct taxes, then, no a ccount shall be taken
of such rebate;
(e) no account shall be taken of any rebate 1[(other than development
rebate or investment allowance or development allow ance)] or credit
or relief or deduction (not hereinbefore mentioned in this section) in
the payment of any direct tax allowed under any law for the time being
in force relating to direct taxes or under the rele vant annual Finance
Act, for the development of any industry.
1 Subs, by Act 66 of 1980, sec. 5, “(other than develop ment rebate or development allowance)”
(w.e.f. 21-8-1980).
12(2) The Payment of Bonus Rules, 1975
8. Eligibility for bonus.— Every employee shall be entitled to be paid by his
employer in an accounting year, bonus, in accordanc e with the provisions of
this Act, provided he has worked in the establishme nt for not less than thirty
working days in that year.
(i) Workers who have option to attend to work at the factory premises are
entitled to bonus; Kale Khan Mohd. Hanif v. Jhansi Bidi Mazdoor Union, 1980
Lab 1C 1973.
(ii) Season workers who have worked for not less t han 30 working days are
entitled to bonus; J.K. Ginning & Pressing Factory v. P.O., 2nd Labour Court,
(1991) 62 FLR 207 (Bom).
(iii) Employees working on part-time basis are elig ible for bonus; Arun Mills Ltd.
v. Dr. Chandra Parshad C. Trivedi, (1976) 32 FLR 323.
(iv) A probationer is eligible for bonus; Bank of Madura Ltd. v. Bank of Madura
Employees’ Union, 1970 Lab 1C 1215.
(v) Every employee is entitled to bonus; Mahabir Tiles Work v. Union of India,
AIR 1968 Ker 143.
9. Disqualification for bonus.— Notwithstanding anything contained in this Act,
an employee shall be disqualified from receiving bo nus under this Act, if he is
dismissed from service for—
(a) fraud; or
(b) riotous or violent behaviour while on the premises of the establishment; or
(c) theft, misappropriation or sabotage of any property of the establishment.
(i) Bar of disqualification for bonus imposed unde r section 9 is a clear and
unequivocal bar and if the wording of the provision s also is carefully gone
through a distinction cannot be drawn between the b onus payable
subsequent to the order of termination or prior to the order of termination and
the bar is applicable to the bonus as such payable under the Act. Hence,
awarding of bonus to workman, on facts, is sustaina ble in law; KL] Plastics
Ltd, v. Labour Court-Ill, Hyderabad, 2002 (3) LLJ 619 Bom.
Case Law
Case Law
12(2) The Payment of Bonus Rules, 1975
(ii) Bonus can be forfeited under section 9 only with reference to accounting year
in which the employee committed fraud, theft, etc.; Himalaya Drug Co. v.
P.O., 2nd Addl. Labour Court,, (1986) 52 FLR 704.
1[10. Payment of minimum bonus.— Subject to the other provisions of this Act,
every employer shall be bound to pay to every emplo yee in respect of the
accounting year commencing on any day in the year 1 979 and in respect of
every subsequent accounting year, a minimum bonus w hich shall be 8.33 per
cent, of the salary or wage earned by the employee during the accounting
year or one hundred rupees, whichever is higher, wh ether or not the
employer has any allocable surplus in the accounting year:
Provided that where an employee has not completed f ifteen years of age at
the beginning of the accounting year, the provision s of this section shall have
effect in relation to such employee as if for the w ords “one hundred rupees”,
the words “sixty rupees” were substituted.]
2[11.Payment of maximum bonus.—
(1) Where in respect of any accounting year referr ed to in section 10, the
allocable surplus exceeds the amount of minimum bon us payable to the
employees under that section, the employer shall, i n lieu of such
minimum bonus, be bound to pay to every employee in respect of that
accounting year bonus which shall be an amount in p roportion to the
salary or wage earned by the employee during the ac counting year
subject to a maximum of twenty per cent, of such salary or wage.
(2) In computing the allocable surplus under this s ection, the amount set on
or the amount set off under the provisions of secti on 15 shall be taken
into account^ in accordance with the provisions of that section.]
3[12.Calculation of bonus with respect to certain em ployees.— Where the
salary or wage of an employee exceeds 1 [three thousand and five hundred
1 Section 10 subs- by Act 23 of 1976, see. 7 (w.e.f. 25 -9-1975) and again subs, by Act 66 of
1980, sec. 6 (w.e.f- 21-8-1980).
2 Section 11 omitted by Act 23 of 1976, sec. 8 (w.e.f. 25-9-1975) and ins, by Act 66 of 1980, sec.
6 (w.re.f. 21-8-1980).
3 Section 12 omitted by Act 30 of 1985, sec. 2 and ins. by Act 67 of 1985, sec. 3 (w.e.f. 7-11-
1985).
12(2) The Payment of Bonus Rules, 1975
rupees] per mensem, the bonus payable to such emplo yee under section 10
or, as the case may be, under section 11, shall be calculated as if his salary
or wage were 2 [three thousand and five hundred rupees] per mensem.]
3
[13.Proportionate reduction in bonus in certain cas es.— Where an employee
has not worked for all the working days in an accou nting year, the minimum
bonus of one hundred rupees or, as the case may be, of sixty rupees, if such
bonus is higher than 8.33 per cent, of his salary o r wage for the days he has
worked in that accounting year, shall be proportionately reduced.]
In the case of a factory which works seasonally dur ing an accounting year,
“working days in any accounting year” can only mean those days of the year
during which the employee concerned is actually all owed to work; Sakhkkar Mills
Mazdoor Sangh v. Gwalior Sugar Co. Ltd., AIR 1985 SC 758.
14. Computation of number of working days.— For the purposes of section 13,
an employee shall be deemed to have worked in an es tablishment in any
accounting year also on the days on which—
(a) he has been laid off under an agreement or as p ermitted by standing
orders under the Industrial Employment (Standing Or ders) Act, 1946 (20
of 1946), or under the Industrial Disputes Act, 1947 (14 of 1947), or under
any other law applicable to the establishment;
(b) he has been on leave with salary or wage;
(c) he has been absent due to temporary disablement caused by accident
arising out of and in the course of his employment; and
(d) the employee has been on maternity leave with s alary or wage, during the
accounting year.
4
[15, Set on and set off of allocable surplus.—
1 Subs. b Act 45 of 2007, sec. 3, for "three two and five hundred rupees" (w.e.r.f. 1-4-2006).
Earlier the words "two thousand and five hundred rupee s" were substituted by act 34 of 1995,
sec. 3, for "one thousand and six hundred rupees" (w.e.r.f. 1-4-1993).
2 Subs. b Act 45 of 2007, sec. 3, for "three two and five hundred rupees" (w.e.r.f. 1-4-2006).
Earlier the words "two thousand and five hundred rupee s" were substituted by act 34 of 1995,
sec. 3, for "one thousand and six hundred rupees" (w.e.r.f. 1-4-1993).
3 Subs, by Act 66 of 1980, sec. 8, for section 13 (w.e.f . 21-8-1980).
4 Subs, by Act 66 of 1980, sec. 9, for section 15 (w.e.f . 21-8-1980).
Case Law
12(2) The Payment of Bonus Rules, 1975
(1) Where for any accounting year, the allocable su rplus exceeds the amount
of maximum bonus payable to the employees in the es tablishment under
section 11, then, the excess shall, subject to a li mit of twenty per cent, of
the total salary or wage of the employees employed in the establishment
in that accounting year, be carried forward for bei ng set on in the
succeeding accounting year and so on up to and incl usive of the fourth
accounting year to be utilised for the purpose of p ayment of bonus in the
manner illustrated in the Fourth Schedule.
(2) Where for any accounting year, there is no avai lable surplus or the
allocable surplus in respect of that year falls sho rt of the amount of
minimum bonus payable to the employees in the estab lishment under
section 10, and there is no amount or sufficient am ount carried forward
and set on under sub-section (1) which could be uti lised for the purpose
of payment of the minimum bonus, then, such minimum amount or the
deficiency, as the case may be, shall be carried fo rward for being set off
in the succeeding accounting year and so on up to a nd inclusive of the
fourth accounting year in the manner illustrated in the Fourth Schedule.
(3) The principle of set on and set off as illustra ted in the Fourth Schedule
shall apply to all other cases not covered by sub-s ection (1) or sub-
section (2) for the purpose of payment of bonus under this Act.
(4) Where in any accounting year any amount has bee n carried forward and
set on or set off under this section, then, in calc ulating bonus for the
succeeding accounting year, the amount of set on or set off carried
forward from the earliest accounting year shall first be taken into account.]
Liability of paying bonus has to be determined only with reference to sections 10
and 11, i.e., the employer is bound to pay the minimum bonus of 4 % of wages or
the maximum bonus of 20% of wages in accounting yea r, as the case may be;
Express Cables Pvt. Ltd. v. C.I.T.,(1992) 1 LLJ 441 (Cal).
16. Special provisions with respect to certain establishments.—
Case Law
12(2) The Payment of Bonus Rules, 1975
1[(1)Where an establishment is newly set up, whether before or after the
commencement of this Act, the employees of such est ablishment shall be
entitled to be paid bonus under this Act in accorda nce with the provisions
of sub-sections (1A), (IB) and (1C).
(1A)In the first five accounting years following th e accounting year in which
the employer sells the goods produced or manufactur ed by him or
renders services, as the case may be, from such est ablishment, bonus
shall be payable only in respect of the accounting year in which the
employer derives profit from such establishment and such bonus shall be
calculated in accordance with the provisions of thi s Act in relation to that
year, but without applying the provisions of section 15.
(1B)For the sixth and seventh accounting years foll owing the accounting year
in which the employer sells the goods produced or m anufactured by him
or renders services, as the case may be, from such establishment, the
provisions of section 15 shall apply subject to the other following
modifications, namely:—
(i) for the sixth accounting year—
set on or set off, as the case may be, shall be ma de in the manner
illustrated in the
2[Fourth Schedule] taking into account the excess or
deficiency, if any, as the case may be, of the allo cable surplus set on
or set off in respect of the fifth and sixth accounting years;
(ii) for the seventh accounting year—
set on or set off, as the case may be, shall be mad e in the manner
illustrated in the 3[Fourth Schedule] taking into account the excess or
deficiency, if any, as the case may be, of the allo cable surplus set on
or set off in respect of the fifth, sixth and seventh accounting years.
(1C)From the eighth accounting year following the a ccounting year in which
the employer sells the goods produced or manufactur ed by him or
renders services, as the case may be, from such est ablishment, the
provisions of section 15 shall apply in relation to such establishment as
they apply in relation to any other establishment.
1 Subs, by Act 23 of 1976, sec. 12, for sub-section (1) a nd Explanation thereto (w.e.f. 25-9-
1975).
2 Subs, by Act 66 of 1980, sec. 10, for “Third Schedule ” (w.e.f. 21-8-1980).
3 Subs, by Act 66 of 1980, sec. 10, for “Third Schedule ” (w.r.e.f. 21-8-1980).
12(2) The Payment of Bonus Rules, 1975
Explanation I.— For the purpose of sub-section (1), an establishmen t shall not
be deemed to be newly set up merely by reason of a change in its location,
management, name or ownership.
Explanation II.— For the purpose of sub-section (1A), an employer sh all not be
deemed to have derived profit in any accounting year unless—
(a) he has made provision for that year’s deprecia tion to which he is entitled
under the Income-tax Act or, as the case may be, un der the agricultural
income-tax law; and
(b) the arrears of such depreciation and losses inc urred by him in respect of the
establishment for the previous accounting years hav e been fully set off
against his profits.
Explanation III.— For the purposes of sub-sections (1A), (IB) and (1C ), sale of
the goods produced or manufactured during the cours e of the trial running of any
factory or of the prospecting stage of any mine or an oil-field shall not be taken
into consideration and where any question arises wi th regard to such production
or manufacture, the decision of the appropriate Gov ernment, made after giving
the parties a reasonable opportunity of representin g the case, shall be final and
shall not be called in question by any court or other authority.]
(2) The provisions of
1[sub-sections (1), (1A), (IB) and (1C)] shall, so f ar as may
be, apply to new departments or undertakings or bra nches set up by existing
establishments:
Provided that if an employer in relation to an exis ting establishment
consisting of different departments or undertakings or branches (whether or
not in the same industry) set up at different perio ds has, before the 29th May,
1965, been paying bonus to the employees of all suc h departments or
undertakings or branches irrespective of the date o n which such departments
or undertakings or branches were set up, on the bas is of the consolidated
profits computed in respect of all such departments or undertakings or
branches, then, such employer shall be liable to pa y bonus in accordance
with the provisions of this Act to the employees of all such departments or
undertakings or branches (whether set up before or after that date) on the
basis of the consolidated profits computed as aforesaid.
1 Subs, by Act 23 of 1976, see. 12, for “sub-section (1) ” (w.r.e.f. 25-9-1975).
12(2) The Payment of Bonus Rules, 1975
17. Adjustment of customary or interim bonus against bonus payable under
the Act.— Where in any accounting year—
(a) an employer has paid any puja bonus or other customary bonus to an
employee; or
(b) an employer has paid a part of the bonus payabl e under this Act to an
employee before the date on which such bonus become s payable, then, the
employer shall be entitled to deduct the amount of bonus so paid from the
amount of bonus payable by him to the employee unde r this Act in respect of
that accounting year and the employee shall be enti tled to receive only the
balance.
(i) Claim of annual bonus was rooted in custom but qualified by negotiations/
settlements held to be customary in nature and not statutory based only on
settlement linked with productivity or profits; Mukund Ltd. v. Mukund Kamgar
Union, 2003 (II) LL] 410 (Bom).
(ii) Payment of any customary bonus, such as attend ance bonus, festival bonus,
or the like, does not absolve the management from t heir liability to pay
statutory bonus; Baidyanath Bhawan Mazdoor Union v. Baidyanath Ayurvedic
Bhawan Pvt. Ltd., 1984 Lab 1C 148.
(iii) The employee is bound to refund the excess am ount of bonus; Landra
Engineering & Foundary Works v. State of Punjab, (1970) 38 FJL 538 (P&H).
18. Deduction of certain amounts from bonus payable under the Act. —
Where in any accounting year, an employee is found guilty of misconduct
causing financial loss to the employer, then, it shall be lawful for the employer
to deduct the amount of loss from the amount of bon us payable by him to the
employee under this Act in respect of that accounti ng year only and the
employee shall be entitled to receive the balance, if any.
19. Time-limit for payment of bonus. —
1[All amounts] payable to an employee
by way of bonus under this Act shall be paid in cash by his employer —
1 Subs, by Acl 23 of 1976, sec. 13, for “(1) Subject t o the provisions of this section all amount”
(w.r.e.f. 25-9-1975).
Case Law
12(2) The Payment of Bonus Rules, 1975
(a) where there is a dispute regarding payment of b onus pending before any
authority under section 22, within a month from the date on which the
award becomes enforceable or the settlement comes i nto operation, in
respect of such dispute;
(b) in any other case, within a period of eight mon ths from the close of the
accounting year:
Provided that the appropriate Government or such au thority as the
appropriate Government may specify in this behalf m ay, upon an application
made to it by the employer and for sufficient reaso ns, by order, extend the
said period of eight months to such further period or periods as it thinks fit;
so, however, that the total period so extended shal l not in any case exceed
two years-
1[***]
2[***]
20. Application of Act to establishments in public sector in certain cases.—
3[(1)] If iExcerpt shown. Open the full act in Lexace.