Section 6 of POB Act, 1965 : Section 6: Sums Deductible From Gross Profits

Explanation using Example

Imagine a manufacturing company, ABC Manufacturing Pvt. Ltd., has had a profitable year and is calculating the bonus to be paid to its employees under The Payment of Bonus Act, 1965. To determine the available surplus for bonus distribution, the company needs to calculate its gross profits and then deduct prior charges as per Section 6 of the Act:

• The company can deduct the depreciation on its machinery and equipment as allowed under the Income-tax Act, which is a standard practice to account for wear and tear of assets.
• If ABC Manufacturing Pvt. Ltd. has received a development rebate or investment allowance for purchasing new machinery, this amount can also be deducted from the gross profits.
• The company must also deduct any direct taxes, like corporate tax, that it is liable to pay for the accounting year from the gross profits.
• Finally, if there are any industry-specific deductions applicable to the company as mentioned in the Third Schedule of the Act, those amounts will also be deducted.

After making these deductions, the remaining amount will be considered for calculating the bonus payable to the employees. This ensures that the bonus is paid out of the actual profits of the company after meeting its statutory and financial obligations.