Understanding the Payment of Bonus Act: Can Anyone Clarify Sections 16(1A), (1B), and (1C)?

Someone, please explain Section 16(1A), (1B), and (1C) of the Payment of Bonus Act, 1965.

Dear Friend,

Sec. 16-1A: In the first five accounting years following the year in which the employer sells the goods produced or manufactured by him, or renders services, bonus shall be payable only for the year in which the employer makes a profit. The bonus calculation shall be in accordance with the provisions of the act.

1B: For the sixth and seventh accounting years in which the employer sells the goods produced or manufactured by him, or renders services, taking into account any excess or deficiency of the allocable surplus set in the fifth and sixth accounting years.

1C: From the eighth accounting year, Sec. 15 shall apply - (a) if provisions have been made for that year's depreciation to which the employer is entitled under the IT Act or the agricultural income tax law, as the case may be, and (b) if arrears of such depreciation and losses incurred by him for the establishment in previous accounting years have been fully set off against his profits.

Have a nice day.

Lalit Kumar Gupta

Hi Lalit Kumar Gupta,

Thank you for your reply; it is quite okay to help me get started. To me, Section (1B) and (1C) mean the same. With that in mind, I have framed the highlights as below. Please modify if fine-tuning is needed, and also correct me if my understanding is wrong.

The special provision with respect to certain establishments stated under Section 16 (1A) (1B) (1C) is applicable as listed below:

- For newly established concerns only.
- Bonus is applicable only from the year the profit is accounted.
- Payment of Minimum Bonus or Payment of Maximum Bonus is not applicable for the first five years.
- Set-on or Set-off is not calculated for the first five years.
- For the sixth, seventh, and eighth accounting years, Payment of Minimum Bonus or Payment of Maximum Bonus is applicable.
- Set-on or Set-off is calculated and carried for the sixth, seventh, and eighth accounting years.

Regards,
Stanley Jones