Corporations often invest their surplus funds in financial instruments such as Futures & Options (F&O), shares, and debt mutual funds to generate additional income. However, when calculating employee bonus obligations and Corporate Social Responsibility (CSR) contributions, it is crucial to determine whether such investment income should be considered.
This guidance note provides a detailed analysis, including definitions, formulas, examples, and case studies, to clarify the treatment of investment income for bonus calculations under the Payment of Bonus Act, 1965, and CSR obligations under the Companies Act, 2013.
1. Definition of Futures & Options (F&O)
Futures & Options (F&O) are derivative instruments traded on stock exchanges:
Futures: A legally binding contract to buy/sell an asset at a predetermined price on a future date.
Options: A contract that grants the right (but not the obligation) to buy/sell an asset at a specific price before a set expiry date.
Tax Treatment:
F&O trading income is classified as Business Income under the Income Tax Act, 1961.
Income from shares and mutual funds can be classified as either business income or capital gains, depending on the frequency and intent of transactions.
2. Bonus Calculation Under the Payment of Bonus Act, 1965
Legal Provisions:
The allocable surplus for bonus computation is derived from gross profits under Sections 4, 5, and 6 of the Payment of Bonus Act, 1965.
Investment income is not considered part of business profits for bonus calculation since it does not arise from core business operations.
Formula for Bonus Calculation:
Example Calculation:
Case Study 1: Bonus Calculation for Zenith Consulting Pvt. Ltd.
Business Activity: IT Consulting & Solutions
Revenue from Core Business: ₹75 Cr
Net Profit from Core Business: ₹7 Cr
Investment in F&O, Shares, and Debt Mutual Funds: ₹10 Cr
Returns Earned (Profit): ₹2 Cr
Total Net Profit (Core + Investment Income): ₹9 Cr
Scenario Analysis:
| Particulars | Core Business Income | Investment Income |
|---|---|---|
| Net Profit | ₹7 Cr | ₹2 Cr |
| Allocable Surplus for Bonus | ₹7 Cr (✅ Included) | ₹2 Cr (❌ Excluded) |
Conclusion:
✅ The ₹2 crore investment income should be excluded from the allocable surplus for bonus calculation, and no bonus is payable on these profits.
3. CSR Calculation Under the Companies Act, 2013
Legal Provisions:
Under Section 135 of the Companies Act, 2013, companies meeting the prescribed financial threshold must spend at least 2% of their average net profit (before tax) of the last three financial years on CSR activities.
Unlike the Bonus Act, investment income is included in CSR calculations, unless specifically exempt under Section 198 of the Act.
Formula for CSR Contribution:
Example Calculation:
Case Study 2: CSR Calculation for Zenith Consulting Pvt. Ltd.
Net Profit from Core Business (Last 3 Years Avg.): ₹6 Cr
Profit from F&O, Shares, Debt Mutual Funds (Last 3 Years Avg.): ₹1.5 Cr
Total Net Profit Considered for CSR: ₹7.5 Cr
Scenario Analysis:
| Particulars | Without Investment Income | With Investment Income |
| Average Net Profit | ₹6 Cr | ₹7.5 Cr |
| CSR Contribution (2%) | ₹12 Lakhs (✅) | ₹15 Lakhs (✅) |
Conclusion:
✅ Investment profit of ₹1.5 crore is included in net profit for CSR purposes, increasing CSR obligations.
4. Summary Table
| Particulars | Bonus Calculation | CSR Calculation |
| Core Business Profit (₹7 Cr) | ✅ Included | ✅ Included |
| Investment Profit (₹2 Cr) | ❌ Excluded | ✅ Included |
| Impact | No Bonus Payable on ₹2 Cr | CSR obligation increases by ₹3 Lakhs |
5. Final Professional Opinion
Based on legal provisions and financial best practices:
For Bonus Calculation: The ₹2 Cr investment profit is not included in allocable surplus, and no bonus is payable on it.
For CSR Compliance: The ₹2 Cr investment profit must be included in net profits, increasing the CSR obligation by ₹3 Lakhs.
Companies should ensure accurate financial reporting and consult professionals to avoid compliance risks.
