Section 16 of POB Act, 1965 : Section 16: Special Provisions With Respect To Certain Establishments

Explanation using Example

Imagine XYZ Tech Solutions is a startup that began operations in January 2023. They specialize in developing innovative software solutions. The company had a successful launch and started generating revenue by selling their software in the same year. As per Section 16 of The Payment of Bonus Act, 1965:

In the first five accounting years, XYZ Tech Solutions will pay bonuses to their employees only in the years they make a profit. This means that if they make a profit in the year 2023, they must calculate and pay bonuses for that year without applying Section 15 of the Act, which deals with the allocation and set on/set off of allocable surplus.

When XYZ Tech Solutions enters its sixth and seventh years, they will apply the provisions of Section 15 with modifications. This means they will consider the surplus or deficit from the fifth to the seventh years to calculate the bonus for their employees.

From the eighth year onwards, XYZ Tech Solutions will follow the standard bonus calculation rules as they apply to established companies.

It's important to note that if XYZ Tech Solutions changes its name or ownership, this does not mean they are a new establishment under this law. Also, they must account for depreciation and past losses before declaring a profit eligible for bonus calculations.