Dear Suresh, can you please state which section of the Payment of Bonus Act or Income Tax Act says that more than 20% of (gross) salary is taxable? I have seen such a provision under Payment of Gratuity Act that any amount received by way of gratuity over and above Rs 20 lakhs taxable for the individual. Bonus being a condition of service, is an expenditure of an employer and it is like any payment made by him. I doubt if the payment over 20% of bonus qualifying salary will be disallowed by the Income tax department. If it is to be disallowed, then the entire amount exceeding 20% of minimum wages or Rs 7000 whichever is higher which should be disallowed because under the Payment of Bonus Act the rate of bonus is arrived on the basis of allocable surplus etc and I am afraid any organisation will go through such processes when the actual practice is either to declare a percentage of earnings by way of salary as bonus or arrive at a rate after negotiating with the trade unions.
For Income tax purpose, again, the expense is allowed even if it is genuine and if not genuine it will be disallowed even if you call it with different name, like ex gratia for bonus. Therefore, if the employer wishes to pay bonus, pay it. He can call it bonus or exgratia, or whatever he things fit.