Bonus Payment Declaration

A Bonus Payment Declaration in India states the declarant's position on the matter it addresses and stands as a formal undertaking of its truth.

The Payment of Bonus Act 1965 was enacted to provide statutory recognition of the principle that employees who contribute to the profits of an establishment have a right to share in those profits through an annual bonus. The Act imposes a mandatory minimum bonus of 8.33% of the annual salary or wage (calculated on a salary ceiling of ₹7,000 per month or the minimum wage for the scheduled employment — whichever is higher) regardless of whether the establishment made a profit or loss in the accounting year. Section 10 of the Act mandates this minimum bonus. The Payment of Bonus (Amendment) Act 2015 raised the eligibility salary ceiling from ₹10,000 to ₹21,000 per month, significantly expanding the number of employees covered by the Act.

The calculation of bonus under the Payment of Bonus Act 1965 follows a specific formula prescribed by Sections 4 to 7 and the First and Second Schedules. The employer must first calculate the 'gross profit' of the establishment for the accounting year as specified in the relevant Schedule, then determine the 'available surplus' and the 'allocable surplus' (60% of available surplus for non-banking companies; 67% for banking companies). The bonus percentage is determined by the relationship between the allocable surplus and the total salary of eligible employees. The maximum bonus payable under the Act is 20% of annual salary.

The Ministry of Labour and Employment, Government of India, administers the Payment of Bonus Act through the Central Industrial Relations Machinery (CIRM) for central sector establishments and through state labour departments for other establishments. Employers must maintain three statutory registers under the Act: Form A (computation of allocable surplus), Form B (set-on and set-off of allocable surplus), and Form C (details of bonus paid to employees). An annual return in Form D must be filed with the Inspector appointed under the Act within 30 days of the expiry of the time limit for bonus payment — i.e., by 30 November for establishments with a 31 March accounting year end.

The Industrial Relations Code 2020, enacted by Parliament but not yet notified into force as of 2024, will consolidate the Payment of Bonus Act 1965 with three other labour codes (Industrial Disputes Act 1947, Trade Unions Act 1926, and Industrial Employment Standing Orders Act 1946). Once the Code comes into force, the bonus provisions will be governed by Chapter VIII of the Industrial Relations Code 2020, which largely retains the existing bonus framework.

A Bonus Payment Declaration is required by every employer covered under the Payment of Bonus Act 1965 — any factory or other establishment employing 20 or more persons — when distributing the statutory annual bonus to eligible employees.

All covered establishments at the close of each accounting year: Every factory registered under the Factories Act 1948 and every establishment employing 20 or more persons must pay statutory bonus under the Payment of Bonus Act 1965 within 8 months of the close of the accounting year. For establishments with an accounting year ending 31 March, statutory bonus must be paid by 30 November. The Bonus Payment Declaration documents the employer's calculation of the allocable surplus, the determined bonus percentage, and the individual amounts paid, for use as a compliance record and to satisfy the statutory register requirements under Forms A, B, and C.

Establishments paying bonus above the statutory minimum: Many employers — particularly in the IT sector, FMCG companies, manufacturing firms, and professional services — pay 'ex gratia' bonus or performance bonus above the statutory minimum of 8.33%. The Bonus Payment Declaration covers both the statutory component (under the Payment of Bonus Act) and any contractual or ex gratia bonus component, providing a single consolidated record of all bonus payments for payroll compliance, income tax (TDS under Section 192), and Form 16 purposes.

Festival advance bonus payments during the year: Large employers in sectors such as retail, hospitality, FMCG, and manufacturing routinely pay interim or festival bonus advances (at Diwali, Durga Puja, Eid, Onam, or Christmas) during the accounting year. The Bonus Payment Declaration at year-end accounts for these advances and calculates the net additional bonus due after deducting advances already paid. This reconciliation document is essential to avoid overpayment and to comply with Section 17 of the Act (deduction of interim bonus from the final statutory bonus).

New or growing establishments crossing the 20-employee threshold: When an establishment's workforce crosses 20 employees during an accounting year, the Payment of Bonus Act 1965 applies to that establishment from the first day the threshold is crossed. For new establishments (defined in Section 16 of the Act), bonus liability in the first five years is limited to the years in which the establishment makes a profit. A Bonus Payment Declaration is needed to document this transition and calculate the first applicable bonus.

Labour inspection and compliance verification: State labour inspectors and Central Industrial Relations Machinery officers conduct inspections of establishments to verify compliance with the Payment of Bonus Act. The Bonus Payment Declaration, along with Form A, Form B, Form C, and Form D, is the primary compliance documentation reviewed during inspections. Establishments without proper declarations and registers face penalties under Section 28 of the Act.

A complete Bonus Payment Declaration under the Payment of Bonus Act 1965 must contain all elements required by the Act's statutory registers and the employer's internal compliance records to demonstrate that the bonus calculation was performed correctly and that all eligible employees received the mandated amounts.

Establishment details: The declaration must identify the establishment by its full legal name, registered address, nature of industry (factory / establishment), registration number under the Factories Act or Shops and Establishments Act, PAN, TAN, and the accounting year to which the bonus relates (e.g., 1 April 2024 to 31 March 2025).

Allocable surplus calculation: The declaration must show the computation of the allocable surplus in accordance with the Payment of Bonus Act 1965, based on the establishment's audited financial statements for the accounting year. The calculation must follow the First Schedule (for non-banking companies) or Second Schedule (for banking companies): starting with net profit before tax, making the prescribed additions (depreciation under Income Tax Act, development allowance) and deductions (direct taxes payable, sums specified in Section 6), arriving at the 'gross profit', then the 'available surplus', and finally the 'allocable surplus' (60% of available surplus for non-banking entities). This computation is recorded in Form A under Rule 4 of the Payment of Bonus Rules 1975.

Set-on and set-off adjustments: Section 15 of the Act requires adjustment of surplus and deficiency across up to four preceding years. Where the allocable surplus in a year exceeds the amount required for 20% bonus, the excess is 'set on' and carried forward. Where the allocable surplus is insufficient for even 8.33% bonus, the deficiency is 'set off' against future years' surplus. The declaration must show the set-on/set-off position from Form B, affecting the bonus percentage for the current year.

Bonus percentage determination: Based on the allocable surplus (adjusted for set-on/set-off) divided by the total eligible wages, the bonus percentage — between 8.33% (statutory minimum) and 20% (statutory maximum) — is determined. The declaration must state the determined bonus percentage and confirm whether the allocable surplus supports this percentage or whether the employer is paying the minimum statutory bonus in a loss year.

Employee-wise bonus calculation: Form C (the register of bonus paid) must record for each eligible employee: name, department, designation, salary or wage for the accounting year, number of working days worked, the salary ceiling applied for bonus computation (₹7,000 or applicable minimum wage — whichever is higher), the bonus amount calculated at the determined percentage, any interim bonus already paid during the year, and the net bonus payable. The declaration summarises this employee-wise data.

Deduction for misconduct: Where bonus has been forfeited for specific categories of misconduct under Section 9 (fraud, riotous behaviour, theft, misappropriation, sabotage), the declaration must record the basis for forfeiture for each affected employee, with reference to the dismissal order and the nature of misconduct.

Payment certification: The declaration must include a certification by the employer (or authorised signatory — HR Director, CFO, or Company Secretary) that the bonus was paid in full to all eligible employees within the statutory time limit, and that the amounts stated are correct per the audited accounts of the establishment. The forms-legal.com Bonus Payment Declaration template covers the mandatory elements under the Payment of Bonus Act, 1965.