Dear Sanjay,
I recently learned that there is a cap on bonuses paid to employees at 20% of their salary. I have a couple of questions:
i) Is it legally allowed to pay bonuses higher than the 20% cap?
ii) What should my company do if employees have been given more than 20%?
Any advice will be greatly appreciated!
Best Regards,
Sanjay
2[11. Payment of maximum bonus.—(1) Where in respect of any accounting year referred to in section 10, the allocable surplus exceeds the amount of minimum bonus payable to the employees under that section, the employer shall, in lieu of such minimum bonus, be bound to pay to every employee in respect of that accounting year a bonus which shall be an amount in proportion to the salary or wage earned by the employee during the accounting year subject to a maximum of twenty per cent of such salary or wage. (extracts from THE PAYMENT OF BONUS ACT, 1965)
2 Section 11 omitted by Act 23 of 1976, sec. 8 (w.r.e.f. ) and ins. by Act 66 of 1980, sec. 6 (w.r.e.f. 21.8.1980)
From Hong Kong, Kowloon
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I recently learned that there is a cap on bonuses paid to employees at 20% of their salary. I have a couple of questions:
i) Is it legally allowed to pay bonuses higher than the 20% cap?
ii) What should my company do if employees have been given more than 20%?
Any advice will be greatly appreciated!
Best Regards,
Sanjay
2[11. Payment of maximum bonus.—(1) Where in respect of any accounting year referred to in section 10, the allocable surplus exceeds the amount of minimum bonus payable to the employees under that section, the employer shall, in lieu of such minimum bonus, be bound to pay to every employee in respect of that accounting year a bonus which shall be an amount in proportion to the salary or wage earned by the employee during the accounting year subject to a maximum of twenty per cent of such salary or wage. (extracts from THE PAYMENT OF BONUS ACT, 1965)
2 Section 11 omitted by Act 23 of 1976, sec. 8 (w.r.e.f. ) and ins. by Act 66 of 1980, sec. 6 (w.r.e.f. 21.8.1980)
From Hong Kong, Kowloon
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Dear,
In my view, you cannot pay a bonus of more than 20% of the salary as per the Bonus Act. If you still want to pay, you can do so under the ex gratia head.
On bonus, the company receives tax exemption, but on ex gratia, there is no tax exemption.
Thanks,
J.S. Malik
From India, Delhi
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174In my view, you cannot pay a bonus of more than 20% of the salary as per the Bonus Act. If you still want to pay, you can do so under the ex gratia head.
On bonus, the company receives tax exemption, but on ex gratia, there is no tax exemption.
Thanks,
J.S. Malik
From India, Delhi
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Dear JS,
Thanks for your advice. What is the consequence to the company if we used to pay 20.8% or equivalent to 2.5 month salaries? Would there be any penalties for the past years? Where can I check the tax rates of ex gratia and the legal consequences of paying bonuses exceeding 20%?
Best regards, Sanjay
From Hong Kong, Kowloon
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Thanks for your advice. What is the consequence to the company if we used to pay 20.8% or equivalent to 2.5 month salaries? Would there be any penalties for the past years? Where can I check the tax rates of ex gratia and the legal consequences of paying bonuses exceeding 20%?
Best regards, Sanjay
From Hong Kong, Kowloon
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Dear Sanjay,
If you have paid a bonus that is more than the maximum percentage, i.e., 20%, then the extra amount paid will be considered as an ex-gratia amount. This will be taxable. You may seek advice from your CA or tax consultant in this regard.
Regards,
R.N.Khola
Sr. Associate
Skylark Associates, Gurgaon
From India, Delhi
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If you have paid a bonus that is more than the maximum percentage, i.e., 20%, then the extra amount paid will be considered as an ex-gratia amount. This will be taxable. You may seek advice from your CA or tax consultant in this regard.
Regards,
R.N.Khola
Sr. Associate
Skylark Associates, Gurgaon
From India, Delhi
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Hello Khola,
Sorry for the late response as I was out of town. Would it be taxable to the employees or employers? I want to do more self-studies before seeking advice from the tax advisor.
Thanks for your information!!!
Sanjay
From Hong Kong, Kowloon
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Sorry for the late response as I was out of town. Would it be taxable to the employees or employers? I want to do more self-studies before seeking advice from the tax advisor.
Thanks for your information!!!
Sanjay
From Hong Kong, Kowloon
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dear whatever amount paid to emplyoee whether exgratia or bonus will be taxable to individual. employer will be exempted tax on bonus but have to pay on exgratia. tks js malik
From India, Delhi
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From India, Delhi
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Amendment to Payment of Bonus Act 2015.jpg
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