Form "A" and Form "B" under the payments of Bonus Act 1965 should calculated by your CFO or any others person which have deep knowledge of Income Tax Act.
It will better if you take service of CA's Consultancy Firm.
These are the following step are needed in computation of allocable surplus .
Step 1 Calculate Gross Profit as per Second Schedule
Step 2 Calculate Depreciation Under Section 6(a)
It is depreciation admissible in accordance with the provisions of sub-section (1) of section 32 of the Income-tax Act.
Step 3 Calculate Development Rebate or Development Allowance Section 6(b)
It is development rebate or investment allowance or development allowance which the employer is entitled to deduct from his income under the income-tax Act.
Step 4 Calculate Direct Taxes payable by Employer
It is any direct tax which the employer is liable to pay for the accounting year in respect of his income, profits and gains during that year as per Income Tax Act.
Step 5 Calculate sum as specified under the third schedule to the Act
Step 6 Calculation of Available Surplus:
It is equal to amount arrived at Step -1 less sum of amount arrived at Step 2 to Step 5
Step 7 Calculation of Allocable Surplus:
It is equal to 60% (67% in case of foreign company) of amount arrived under Step 6.
The method for calculation of annual bonus is as follow: 1. Calculate the gross profit profit in the manner specified in-
First Schedule, in case of a banking company, or
Second Schedule, in any other case.
2. Calculate the Available Surplus.
Available Surplus = A+B,
where A = Gross Profit Depreciation admissible u/s 32 of the Income tax Act - Development allowance - Direct taxes payable for the accounting year (calculated as per Sec.7) Sums specified in the Third Schedule.
where B = Direct Taxes (calculated as per Sec. 7) in respect of gross profits for the immediately preceding accounting year Direct Taxes in respect of such gross profits as reduced by the amount of bonus, for the immediately preceding accounting year.
3. Calculate Allocable Surplus
Allocable Surplus = 60% of Available Surplus, 67% in case of foreign companies.
4. Make adjustment for Set-on and Set-off. For calculating the amount of bonus in respect of an accounting year, allocable surplus is computed after considering the amount of set on and set off from the previous years, as illustrated in Fourth Schedule.
5. The allocable surplus so computed is distributed among the employees in proportion to salary or wages received by them during the relevant accounting year.
What is set off?
Suppose you don't have sufficient profit, you still have to pay bonus, this amount is set off to be adjusted against future profits (carried forward)
What is set on?
After making all the adjustments, we can make payment of bonus (minimum bonus is 8.33% and maximum bonus 20% p.a. Of salary / wages), if we have surplus profit left, we can keep it for future, this is called set on it can be used in next 4 years.
Example... Gross profit 200, permissible exp. 40, depreciation 20, income tax : 20%, payments to workers 10.
solution : (200 40 20) = 140 less tax : = 140-28= 112 60% is allocable surplus : 67 bonus to be given : 20% of 10 = 2. amount left : 67-2 = 65, the firm can set on for 4 years: Rs. 8.
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