Understanding Infancy Protection in the Payment of Bonus Act: How to Handle Partial Production and No Profits?

What infancy protection is available under the Payment of Bonus Act? How to reckon the commencement date/period if partial production is only achieved, even after five years? No profits are earned by the unit in any year, and production is only 70% of the production capacity.

Understanding the "Infancy Period" Under the Payment of Bonus Act, 1965

Regarding the reckoning of the "infancy period" for the purpose of a newly set-up establishment's liability to pay a bonus under the Payment of Bonus Act, 1965, I feel that if the questioner had conducted an in-depth study of Section 16 of the Act—which elaborately lays down the special provisions with reference to certain establishments in respect of payment of bonus—it would have been better to present their queries on the subject more specifically.

Anyhow, let me answer in a broad manner so that it may give rise to specific questions after their review of the relevant section with reference to my brief answer.

The infancy period does not simply cover the five consecutive years from the year of the inception of the establishment. On the contrary, it only originates from the year in which the goods produced or manufactured in the establishment are sold, or services are rendered by the establishment, as the case may be, and profits are derived.

The application of the principles of set on and set-off under Section 15 of the Act, as illustrated in Schedule Four, would commence only from the sixth year onwards.

Regards

Commencement of Production and Accounting Year

In general, the commencement of production is recorded from the date of your first invoice for establishing the accounting year. It is not linked with capacity utilization, whether it is 100% or 30%.

Infancy Period Under the Payment of Bonus Act

Regarding the infancy period, please refer to Section 16 (1-A), which states: "In the first five accounting years following the accounting year in which the employer sells the goods produced or manufactured or services rendered, as the case may be, the bonus will be payable only in respect of the accounting year in which the employer derives profit from the establishment."

Regards, P K Sharma

If the company starts making profits in any of the five years of infancy, a bonus based on A & B form needs to be paid. The only thing is the earlier year's set-on and set-off figures can't be used in the first year of making profits.