Section 7 of POB Act, 1965 : Section 7: Calculation Of Direct Tax Payable By The Employer

Explanation using Example

Imagine a scenario where ABC Pvt. Ltd. is a company that manufactures electronic goods. For the accounting year 2022-2023, the company has made substantial profits and is liable to pay bonuses to its employees under The Payment of Bonus Act, 1965. While calculating the bonus, the company also needs to consider its tax liabilities.

According to Section 7 of The Payment of Bonus Act, 1965, when ABC Pvt. Ltd. calculates its direct tax payable, it should not take into account any loss from previous years that it is carrying forward, nor should it consider any deferred depreciation that it can add to the depreciation allowance in the future. Additionally, if the company has any tax exemptions or deductions from specific sections of the Income-tax Act, these should not influence the calculation of the tax for the purpose of determining the bonus.

For instance, if ABC Pvt. Ltd. had a loss in the year 2021-2022 that it is carrying forward to offset against profits in 2022-2023, this loss would not reduce the amount of profit considered for the bonus calculation. Similarly, if the company is entitled to a tax rebate for exporting goods, this rebate will not be factored into the bonus calculation. This ensures that the bonus is calculated based on the actual profits of the company for the year, without reductions for certain tax benefits or adjustments.