1. Implementing Payroll for India
  2. Create Bonus Taxation Element for India

Create Bonus Taxation Element for India

Create a bonus element to compute and deduct the income tax on bonus using one of the 3 taxation methods in India Payroll.

Let's look at these taxation methods you need to use, when you create the bonus element.

  1. Fixed Percentage Taxation: Bonus is taxed using a fixed percentage in the period it is paid. If any extra tax needs to be deducted, it is adjusted during the remaining pay periods in the financial year.

  2. Distributed or Regular Taxation: Bonus amount is added to the gross total income and the tax is calculated in the same way as other earnings. The extra tax payable because of the bonus payment, is distributed equally for the remaining pay periods, including the current pay period.

  3. Lump Sum or Spot taxation: Bonus is added to the total taxable income to derive the total income tax for the financial year. The additional tax because of the bonus payment is deducted in the same period in which the bonus is paid.

Use the Elements task in the Payroll section of My Client Groups to create the Bonus element. Choose the new secondary element classification Bonus with the required taxation type, based on your requirements.

Create Bonus Taxation Element

  1. Use the Elements task, to create the bonus element, using the primary classification Earnings.

  2. Select the new secondary classification Bonus and category Standard.

  3. On the Basic Information page, complete the fields for the bonus element, and click Next.

  4. On the Additional Details page, choose the appropriate answers for the questionnaire.

  5. In the Earning Rules area, do the following:

    1. Select the applicable Bonus Taxation Type:

      • Fixed Percentage

      • Lumpsum or Spot

      • Distributed or Regular

    2. Choose the responses for the questionnaire on ESI.

  6. Create the element eligibility rule for the Bonus element created using the element template.

  7. Click Submit. All the associated balances, feeds, input values, formulas, and related elements required for payroll processing gets created automatically.

The formula <element name>_BONUS_CALCULATION is linked to the status processing rule for the Bonus element.

Whenever a bonus element is created, it feeds the balances:

  • Net Pay

  • Gross Pay (base name: IN_GROSS_PAY)

  • Earnings (base name: IN_EARNINGS)

The balance feeds for ESI Computation Salary and ESI Eligible Salary are also created.