In accordance with Section 15 of the Payment of Bonus Act, 1965, the provisions related to the set on and set off of allocable surplus are designed to ensure that any surplus in one year can be carried forward or made up from previous years, subject to certain limitations. These provisions help in balancing the distribution of the bonus to employees over multiple years, especially when the available surplus fluctuates. The law provides guidelines on when the surplus is carried forward and how it is utilized in future years.
Key Provisions of Set On and Set Off:
Set On:
- Definition: If in a particular accounting year, the allocable surplus exceeds the maximum bonus payable to employees, the excess surplus (after meeting the maximum bonus requirement) may be carried forward and used to set on in the subsequent accounting years.
- Limit for Set On: The excess that is carried forward for set on is subject to a cap of 20% of the total salary or wages of the employees employed in the establishment for that year. This ensures that the surplus set on does not exceed a certain proportion of the employees' total salary or wages.
- Period of Carry Forward: The surplus carried forward as set on can be carried forward for a period of up to four accounting years.
- Utilization of Set On: In subsequent years, if there is a shortfall in the allocable surplus for paying bonuses, the set on amount can be utilized to meet the bonus payments.
Set Off:
- Definition: If in a particular accounting year, the available surplus or allocable surplus falls short of the minimum bonus payable to employees (as per Section 10 of the Act), or if there is no available surplus in that year, the shortfall can be carried forward from the surplus of previous years, which has been set on.
- Minimum Bonus (Section 10): The minimum bonus payable to employees is 8.33% of their salary or wages, or INR 100, whichever is higher. If the current year's allocable surplus is insufficient, this deficiency can be set off from the surplus carried forward (set on) from previous years.
- Period of Carry Forward for Set Off: Like the set on, the deficiency can be carried forward for up to four accounting years.
- Utilization of Set Off: The deficiency in the current year’s bonus payments is covered by the set off amount, which will be utilized in future years.
Set On and Set Off Calculation Process
Calculate Allocable Surplus:
- Start by calculating the allocable surplus as per the provisions under Section 6. This is done by subtracting deductions from the gross profit.
Determine Maximum and Minimum Bonus:
- Compare the allocable surplus with the maximum bonus (20% of salary or wages) and the minimum bonus (8.33% of salary or wages or INR 100, whichever is higher).
Excess Surplus (Set On):
- If the allocable surplus exceeds the maximum bonus, the excess amount is set on.
- The excess is limited to 20% of the total salary or wages of employees.
Deficiency in Bonus (Set Off):
- If the allocable surplus is insufficient to pay the minimum bonus, the shortfall is set off from the surplus carried forward (set on) from previous years.
Track Surplus and Deficiency:
- Maintain a register that tracks both set on (excess surplus carried forward) and set off (deficiency covered) for each year.
Format for Tracking Set On and Set Off of Allocable Surplus
Register for Set On and Set Off
The employer must maintain a detailed register to record both the set on and set off amounts, ensuring compliance with the Payment of Bonus Act. The format should include the following fields:
| Year | Allocable Surplus (INR) | Maximum Bonus Payable (20%) (INR) | Excess Surplus (Set On) (INR) | Minimum Bonus Payable (8.33%) (INR) | Deficiency (Set Off) (INR) | Surplus Carried Forward (Set On) | Deficiency Carried Forward (Set Off) |
|---|---|---|---|---|---|---|---|
| FY 2023-24 | 15,00,000 | 5,00,000 | 1,00,000 | 1,25,000 | 0 | 1,00,000 | 0 |
| FY 2024-25 | 10,00,000 | 4,00,000 | 0 | 1,00,000 | 0 | 0 | 1,00,000 |
| FY 2025-26 | 12,00,000 | 4,80,000 | 0 | 1,00,000 | 0 | 0 | 1,00,000 |
Key Points for the Register:
- Excess Surplus (Set On): If the allocable surplus exceeds the maximum bonus payable, the difference is carried forward as set on.
- Deficiency (Set Off): If the allocable surplus is insufficient for the minimum bonus, the deficiency is covered using the set-off amount carried forward.
- The amounts are carried forward for a maximum period of four years.
Draft Form A for Set On and Set Off of Allocable Surplus
Form A is a declaration summarizing the set on and set off of allocable surplus, and it should be signed by a Chartered Accountant (CA) to confirm its accuracy and compliance with the law.
[Employer’s Name]
[Employer’s Address]
[Financial Year]
Subject: Computation of Set On and Set Off of Allocable Surplus for the Financial Year [Year]
Allocable Surplus Calculation:
- Gross Profits (After Deductions): [Amount]
- Less: Sums Deductible as per Section 6: [Amount]
- Allocable Surplus: [Amount]
Maximum Bonus Payable:
- 20% of Salary/Wages of Employees: [Amount]
- Excess Surplus (Set On): [Amount]
(If allocable surplus exceeds the maximum bonus)
Minimum Bonus Payable:
- 8.33% of Salary/Wages or INR 100 (whichever is higher): [Amount]
- Deficiency (Set Off): [Amount]
(If allocable surplus falls short of the minimum bonus)
Surplus/Deficiency Carried Forward (Set On/Set Off):
- Excess Surplus Set On from Previous Year: [Amount]
- Deficiency Set Off from Previous Year: [Amount]
Chartered Accountant’s Certification:
I, [Name of CA], certify that the calculation of the allocable surplus, set on, and set off has been done in compliance with the provisions of the Payment of Bonus Act, 1965.
Conclusion
In conclusion, set on and set off provisions under the Payment of Bonus Act, 1965 play a crucial role in ensuring that employers manage their surplus and deficiency for bonus payments effectively over multiple years. By maintaining a proper register and filing accurate Form A, employers can ensure that they are in compliance with the legal requirements while distributing the bonus to employees in a fair and transparent manner.
