Appendices explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
The four Appendices are the working formats for the bonus chapter. Appendix A is a worked illustration of set on and set off over ten years. Appendices B and C are the formats for computing gross profits, B for a banking company and C for any other employer. Appendix D lists the further sums deducted from gross profit as prior charges. Rules 22 to 28 refer to them. A payroll compliance audit can use these formats for your bonus working.
Appendix A illustrates set on and set off using assumed figures stated in the Appendix: bonus of Rs 1,04,167 (8.33 per cent) as the minimum and Rs 2,50,000 (twenty per cent) as the maximum. Appendix B and Appendix C are seven-item formats from net profit to gross profits for purposes of bonus. Appendix D lists, by type of employer, the further sums deducted as prior charges under section 34(c). These Rules apply where the Central Government is the appropriate Government; otherwise the State's own wage rules apply.
Appendix A: set on and set off illustration
Heading: "See rules 22, 23, 27 and 28". It begins with its own assumptions: the total bonus equal to 8.33 per cent of the annual salary or wage payable to all employees "is assumed to be Rs. 1,04,167", so the maximum (twenty per cent) "would be Rs. 2,50,000". These are the Appendix's illustration only, not rates for any employer.
Columns: (1) year; (2) amount equal to sixty per cent or sixty-seven per cent, as the case may be, of available surplus allocable as bonus; (3) amount payable as bonus; (4) set on or set off of the year; (5) total carried forward, with (6) the year it relates to.
| Year | Allocable (Rs) | Bonus payable (Rs) | Set on or set off |
|---|---|---|---|
| 1 | 1,04,167 | 1,04,167 (minimum) | Nil |
| 2 | 6,35,000 | 2,50,000 (maximum) | set on 2,50,000 |
| 3 | 2,20,000 | 2,50,000, with 30,000 from year 2 | total set on 2,20,000 (year 2) |
| 4 | 3,75,000 | 2,50,000 | set on 1,25,000; totals 2,20,000 (yr 2), 1,25,000 (yr 4) |
| 5 | 1,40,000 | 2,50,000, with 1,10,000 from year 2 | totals 1,10,000 (yr 2), 1,25,000 (yr 4) |
| 6 | 3,10,000 | 2,50,000 | set on 60,000; totals nil (yr 2), 1,25,000 (yr 4), 60,000 (yr 6) |
| 7 | 1,00,000 | 2,50,000, with 1,25,000 from yr 4 and 25,000 from yr 6 | total 35,000 (yr 6) |
| 8 | Nil (loss) | 1,04,167, with 35,000 from yr 6 | set off 69,167 |
| 9 | 10,000 | 1,04,167 | set off 94,167; totals 69,167 (yr 8), 94,167 (yr 9) |
| 10 | 2,15,000 | 1,04,167, after setting off 69,167 (yr 8) and 41,666 (yr 9) | total set off 52,501 (yr 9) |
Footnotes: "* Maximum." "+ The balance of Rs. 1,10,000 set on from year-2 lapses." "** Minimum."
What it shows. Excess over the maximum is set on, subject to the twenty per cent limit; the earliest amount is used first; set on unused after the fourth following year lapses (year 2's Rs 1,10,000 by year 6); and where there is no surplus or too little, the minimum is paid and the shortfall is set off against later surplus. See rules 27 and 28 and rules 21 to 23.
Slips and silences. The "+" marker for the lapse footnote does not appear against a cell in the printed table. The Appendix does not explain when sixty per cent applies and when sixty-seven per cent, nor how its ten years map to an establishment's first accounting years under section 26(6) to (8).
Appendices B and C: computation of gross profits
Both are headed "Computation of gross profits", "Accounting year ending ...". Rule 24 sends banking companies to Appendix B and rule 25 sends all others to Appendix C, under section 32. See rules 24 to 26 and sections 32 and 33.
| Item | What it does | Main differences, B (bank) and C (other) |
|---|---|---|
| 1 | Starting point: net profit per the profit and loss account | B: after usual and necessary provisions, with a star note on the actual tax provision |
| 2 | Add back provisions for bonus, depreciation, development rebate or allowance reserve, any other reserves | C also adds back direct taxes, including provision for earlier years |
| 3 | Add back bonus paid for earlier years, excess gratuity, donations above the admissible amount, capital expenditure and capital losses, losses of business outside India | B: amount certified by the RBI under section 34A(2) of the Banking Regulation Act, 1949; C: annuity under section 280D of the Income Tax Act |
| 4 | Add income, profits or gains credited directly to reserves, other than capital receipts and profits and foreign business items | B names income of foreign banking companies; C, foreign concerns |
| 5 | Total of items 1 to 4 | same |
| 6 | Deduct capital receipts and profits, profits of business outside India, expenditure or losses debited directly to reserves, refunds of excess direct tax and written-back provisions, cash subsidy for specified purposes, and head-office expenses of foreign concerns | foreign banking companies in B; foreign concerns in C |
| 7 | Gross profits for purposes of bonus (item 5 minus item 6) | same |
Footnotes in both: add-backs apply "if, and to the extent, charged to Profit and Loss Account"; deductions apply "if, and to the extent, credited to Profit and Loss Account". Appendix B's footnote (3) applies the proportion of Indian gross profit to total world gross profit. Each Explanation gives "approved gratuity fund" the meaning in clause (5) of section 2 of the Income Tax Act, 1961.
Income-tax references. The Appendices quote the 1961 Act as printed. The Income-tax Act, 2025 has replaced it from 1 April 2026; we give no new section numbers, so see our income-tax guides.
Slip. Item 3 sub-items are numbered differently: B lists gratuity as "(b)", C as "(aa)". Use each Appendix item by item as printed.
Appendix D: further sums deducted as prior charges
Heading: "See rule 26". Under rule 26 these are deducted from gross profit under section 34(c), in addition to depreciation and direct tax under section 34(a) and (b).
| Item | Employer | Further sums (as printed) |
|---|---|---|
| 1 | Company other than a bank | preference dividends at the actual rate; 8.5 per cent of paid-up equity capital and 6 per cent of reserves, both at the start of the year. Foreign company proviso: 8.5 per cent on net fixed and current assets in India less current liabilities |
| 2 | Banking company | preference dividends; 7.5 per cent of paid-up equity capital; 5 per cent of reserves; sums transferred to a statutory reserve fund or to reserves in India under RBI direction, "whichever is higher". Foreign banking company proviso by working-funds proportion |
| 3 | Corporation | 8.5 per cent of paid-up capital; 6 per cent of reserves |
| 4 | Co-operative society | 8.5 per cent of capital invested in its establishment; sums carried to a reserve fund under co-operative law |
| 5 | Any other employer | 8.5 per cent of capital invested. Provisos: annuity deposit; for a firm, 25 per cent of gross profits after depreciation as partners' remuneration, with a five lakh rupee per-partner maximum; for an individual or HUF, 25 per cent or five lakh rupees, whichever is less |
Explanation. "Reserves" in items 1(iii), 2(iii) and 3(ii) excludes amounts set apart for direct tax payable, admissible depreciation and declared dividends, but includes any excess set apart for tax or depreciation.
Slips. In item 2, "whichever is higher" stands after the list and evidently applies to the two alternatives in (iv). The category column of item 5 is broken across lines in the source text we read, so we describe it by its sums only. For any computation, read the full printed provisos.
Illustration (hypothetical). A company other than a bank has paid-up equity capital of Rs 10 crore at the start of the year. Item 1(ii) deducts 8.5 per cent, Rs 85 lakh. This is arithmetic only.
Need help preparing the bonus working papers?
A missing add-back or prior charge changes the bonus pool. Our payroll compliance audit team can prepare the gross profit computation in the right Appendix, apply the Appendix D deductions and carry set on and set off forward year by year.
Key takeaways
- Appendix A is an illustration with assumed figures stated in it: Rs 1,04,167 and Rs 2,50,000.
- Appendix B is for a banking company, Appendix C for any other employer; both end at gross profits for purposes of bonus.
- Appendix D lists further sums by employer type, for example 8.5 per cent of equity capital and 6 per cent of reserves for a company other than a bank.
- The Appendices refer to the Income Tax Act, 1961, since replaced from 1 April 2026.
Read next
- Rules 24 to 26: computation of gross profits and further deductions
- Rules 27 and 28: carrying forward, set on and set off
- Sections 34 and 35: sums deductible from gross profits and direct tax
- Bonus calculation under the Payment of Bonus Act
Disclaimer: Based on the Code on Wages, 2019 (as enacted) and, where noted, the Code on Wages (Central) Rules, 2026 (G.S.R. 343(E), 8 May 2026), as on 1 October 2026. The Code is in force from 21 November 2025; State Governments make their own rules for establishments where the State is the appropriate Government, and wage rates are notified separately. Verify the current position before acting.