15. Write a short note on bonus or commission to employees section.
Employee bonuses and commissions are additional compensation used to incentivize performance. Under tax law, both are fully taxable as "Income from Salary" and subject to TDS (Tax Deducted at Source) by employers. Legally, statutory bonuses are mandated by labor laws based on company profitability and employee wage limits. [1, 2, 3, 4]
Core Differences
- Bonus: A lump-sum payment (statutory or discretionary) usually tied to milestones, festivals, or overall company/individual performance, rather than day-to-day sales.
- Commission: Variable-pay remuneration directly linked to pre-determined sales quotas or revenue generated, typically paid out more frequently (e.g., monthly). [6, 7]
Statutory Bonus Laws (India)
- Applicability: Under the Code on Wages, 2019 (which subsumed the Payment of Bonus Act, 1965), organizations with 20 or more employees must pay statutory bonuses.
- Eligibility: Employees earning a basic salary plus dearness allowance up to ₹ 21,000 per month, and who have worked for at least 30 days, are eligible.
- Calculation: The minimum statutory bonus is 8.33% of the employee's earned wage, capped at a maximum of 20%. It must be paid within 8 months of the financial year's close. [4]
Taxation and Deduction
- For Employees: Both bonus and commission are fully taxable and are added to the employee's total annual income to be taxed at the applicable slab rate.
- For Employers: Under business and income tax provisions (such as Section 36 of the Indian Income Tax Act), bonus or commission paid to employees is fully deductible from the employer's business income as an operating expense, provided it is not distributed as profits or dividends. [9, 10]
Comments
Post a Comment