Section 36(1)(ii) of the Income Tax Act, 1961 allows a deduction for any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission.

The following are the key points to remember about bonus or commission to employees under Section 36(1)(ii) under Income Tax Act:

• The bonus or commission must be paid to an employee.
• The bonus or commission must be paid for services rendered.
• The bonus or commission must not be payable as profits or dividend.
• The bonus or commission must be paid out of profits.

If these conditions are met, then the bonus or commission paid to an employee will be allowed as a deduction under Section 36(1)(ii) under Income Tax Act.

Here are some examples of bonus or commission that are allowed as a deduction under Section 36(1)(ii) under Income Tax Act:

• Statutory bonus paid under the Payment of Bonus Act, 1965.
• Voluntary bonus paid to employees.
• Commission paid to sales representatives.
• Commission paid to employees for achieving targets.

Here are some examples of bonus or commission that are not allowed as a deduction under Section 36(1)(ii) under Income Tax Act:

• Bonus paid to partners or shareholders.
• Bonus paid in lieu of profits or dividend.
• Bonus paid in cash or kind to employees who are not permanent employees.

Examples

Sure, here is an example of a bonus or commission to employees that is allowed as a deduction under section 36(1)(ii) of the Income Tax Act, 1961 in India:

A company based in Maharashtra pays a bonus of Rs. 100,000 to its employees. The bonus is paid as a reward for their good performance during the financial year. The bonus is not paid in lieu of dividends or profits.

The company can claim a deduction of Rs. 100,000 for the bonus paid to its employees under section 36(1)(ii) of the Income Tax Act, 1961.

• A company based in Gujarat pays a commission of 10% of the total sales to its sales representatives.
• A company based in Delhi pays a bonus of Rs. 50,000 to its employees for meeting their annual targets.
• A company based in Tamil Nadu pays a commission of 2% of the total profits to its top management.

Please note that there are some conditions that must be met for a bonus or commission to be allowed as a deduction under section 36(1)(ii) under Income Tax Act. These conditions include:

• The bonus or commission must be paid to employees in cash or by cheque.
• The bonus or commission must be paid for services rendered by the employees.
• The bonus or commission must not be paid in lieu of dividends or profits.

FAQ QUESTIONS

• What is bonus or commission under section 36(1)(ii) under Income Tax Act?

Bonus or commission under section 36(1)(ii)

under Income Tax Act is any sum paid to an employee as bonus or commission for services, rendered where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission.

• What are the conditions for claiming deduction under section 36(1)(ii) under Income Tax Act?

To claim deduction under section 36(1)(ii) under Income Tax Act, the following conditions must be met:

* The bonus or commission must be paid to an employee.

* The bonus or commission must be paid for services rendered.

* The bonus or commission must not be payable to the employee as profits or dividend.

* The bonus or commission must be paid out of profits.

• What are the limitations on the deduction under section 36(1)(ii) under Income Tax Act?

There are a few limitations on the deduction under section 36(1)(ii) under Income Tax Act:

* The deduction is limited to the amount of bonus or commission that is actually paid.

* The deduction is not available if the bonus or commission is paid in lieu of profits or dividend.

* The deduction is not available if the bonus or commission is paid to a partner or shareholder of the company.

• What are the important points to remember about bonus or commission under section 36(1)(ii) under Income Tax Act?

Here are some important points to remember about bonus or commission under section 36(1)(ii) under Income Tax Act:

* The bonus or commission must be paid for services rendered. This means that the bonus or commission cannot be paid for capital gains or for any other non-recurring income under Income Tax Act.

* The bonus or commission must be paid out of profits. This means that the company must have sufficient profits to pay the bonus or commission.

* The deduction is not available if the bonus or commission is paid in lieu of profits or dividend. This means that the bonus or commission cannot be used to avoid paying taxes on profits or dividends.

* The deduction is not available if the bonus or commission is paid to a partner or shareholder

CASE LAWS

• Loyal Motor Service Company Ltd. v. CIT (1963) 50 ITR 31 (Bom.): In this case, the Bombay High Court held that the payment of bonus in lieu of dividend is not deductible under section 36(1)(ii) under Income Tax Act. The court held that the bonus was paid to avoid payment of dividend distribution tax.
• CIT v. Indian Hume Pipe Co. Ltd. (1975) 103 ITR 41 (SC): In this case, the Supreme Court upheld the decision of the Bombay High Court in the Loyal Motor Service Company Ltd. case. The court held that the payment of bonus in lieu of dividend is not deductible under section 36(1)(ii) under Income Tax Act.
• CIT v. A.C. Nielsen (India) Pvt. Ltd. (2004) 267 ITR 520 (Del.): In this case, the Delhi High Court held that the payment of bonus to employee-shareholders is deductible under section 36(1)(ii) under Income Tax Act if the bonus is not paid in lieu of dividend. The court held that the fact that the employee-shareholders are also directors of the company is not relevant.
• CIT v. Blue Dart Express Ltd. (2014) 367 ITR 146 (Del.): In this case, the Delhi High Court held that the payment of bonus to employees is deductible under section 36(1)(ii) under Income Tax Act even if the bonus is paid out of accumulated profits. The court held that the fact that the bonus is paid out of accumulated profits does not make it a dividend.