Dear Seniors,
We are a Pvt. Ltd. Engineering Company in Mumbai for 40 years. We are requesting your assistance or any contact person who can help in updating our bonus register, Form A (Computation of the allocable surplus), and Form B (Set-on and set-off of Allocable Surplus). Our Accounts team is currently unaware and unable to update these registers.
Thank you.
From India, Surat
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We are a Pvt. Ltd. Engineering Company in Mumbai for 40 years. We are requesting your assistance or any contact person who can help in updating our bonus register, Form A (Computation of the allocable surplus), and Form B (Set-on and set-off of Allocable Surplus). Our Accounts team is currently unaware and unable to update these registers.
Thank you.
From India, Surat
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Calculation of Allocable Surplus Under the Bonus Act 1965
Form "A" and Form "B" under the Payments of Bonus Act 1965 should be calculated by your CFO or any other person with deep knowledge of the Income Tax Act. It is advisable to take the services of a CA's consultancy firm.
Steps in Computation of Allocable Surplus
Step 1 – Calculate Gross Profit as per Second Schedule.
Step 2 – Calculate Depreciation Under Section 6(a). This is the 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). This is the 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. This 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 the Income Tax Act.
Step 5 – Calculate the sum as specified under the third schedule to the Act.
Step 6 – Calculation of Available Surplus: It is equal to the amount arrived at in Step 1 less the sum of amounts arrived at in Steps 2 to 5.
Step 7 – Calculation of Allocable Surplus: It is equal to 60% (67% in the case of a foreign company) of the amount arrived at under Step 6.
Method for Calculation of Annual Bonus
1. Calculate the gross profit in the manner specified in:
- First Schedule, in the 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.
- 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 the case of foreign companies.
4. Make adjustments 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 the Fourth Schedule.
5. The allocable surplus so computed is distributed among the employees in proportion to the salary or wages received by them during the relevant accounting year.
Understanding Set-off and Set-on
What is set-off? Suppose you don't have sufficient profit, you still have to pay a 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 the payment of the 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 the future. This is called set-on, and it can be used in the next 4 years.
Example: Gross profit 200, permissible expenses 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.
Regards,
Amit
From India, Surat
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144Form "A" and Form "B" under the Payments of Bonus Act 1965 should be calculated by your CFO or any other person with deep knowledge of the Income Tax Act. It is advisable to take the services of a CA's consultancy firm.
Steps in Computation of Allocable Surplus
Step 1 – Calculate Gross Profit as per Second Schedule.
Step 2 – Calculate Depreciation Under Section 6(a). This is the 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). This is the 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. This 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 the Income Tax Act.
Step 5 – Calculate the sum as specified under the third schedule to the Act.
Step 6 – Calculation of Available Surplus: It is equal to the amount arrived at in Step 1 less the sum of amounts arrived at in Steps 2 to 5.
Step 7 – Calculation of Allocable Surplus: It is equal to 60% (67% in the case of a foreign company) of the amount arrived at under Step 6.
Method for Calculation of Annual Bonus
1. Calculate the gross profit in the manner specified in:
- First Schedule, in the 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.
- 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 the case of foreign companies.
4. Make adjustments 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 the Fourth Schedule.
5. The allocable surplus so computed is distributed among the employees in proportion to the salary or wages received by them during the relevant accounting year.
Understanding Set-off and Set-on
What is set-off? Suppose you don't have sufficient profit, you still have to pay a 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 the payment of the 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 the future. This is called set-on, and it can be used in the next 4 years.
Example: Gross profit 200, permissible expenses 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.
Regards,
Amit
From India, Surat
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Dear The Trooper,
For a practical understanding of the principle of "set on-set off," you can refer to my upload on this site or my notes in my blog "Legally Speaking" with the title "The Principle of Set on and Set off."
Thank you.
From India, Salem
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For a practical understanding of the principle of "set on-set off," you can refer to my upload on this site or my notes in my blog "Legally Speaking" with the title "The Principle of Set on and Set off."
Thank you.
From India, Salem
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Allocable Surplus for Bonus.pdf
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