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of <h1>Bonus Reserve Deductions Permitted u/s 36(1)(ii) for Mercantile Accounting; Scrutinize Bonus Claims Carefully for Validity.</h1> Amounts credited to the bonus reserve account have been allowed as deductions under section 36(1)(ii) of the Income-tax Act, 1961. If an employer uses the mercantile accounting system, deductions for bonuses are permissible in the year the claim is admitted or adjudicated. However, deductions for bonuses reserved in accounts are unjustified. Under the Bonus Act, 1965, any surplus exceeding the maximum payable bonus must be credited to a bonus reserve account and carried forward for up to four years. Claims for bonus expenses should be scrutinized, and necessary disallowances made. Officers are instructed to follow these guidelines.
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