Section 35 of the Code on Wages, 2019: Calculation of Direct Tax Payable by Employer
Section 35 lays down the special method for calculating an employer's direct-tax liability when the tax figure is used for the bonus computation framework under Chapter IV of the Code on Wages, 2019.
What Section 35 means
Section 35 does not create a separate income tax. Instead, it tells an employer how "direct tax" is to be calculated for the purposes of the Code on Wages. This calculation matters particularly in determining the available surplus and allocable surplus used for statutory bonus under Chapter IV.
The provision should therefore be read with Sections 33 and 34 on available surplus and deductions from gross profits, as well as the other bonus provisions in Chapter IV.
Statutory text of Section 35
35. Calculation of direct tax payable by employer. For the purposes of this Code, any direct tax payable by the employer for any accounting year shall, subject to the following provisions, be calculated at the rates applicable to the income of the employer for that year, namely:-
(a) in calculating such tax no account shall be taken of,-
(i) any loss incurred by the employer in respect of any previous accounting year and carried forward under any law for the time being in force relating to direct taxes;
(ii) any arrears of depreciation which the employer is entitled to add to the amount of the allowance for depreciation for any succeeding accounting year or years under sub-section (2) of section 32 of the Income-tax Act;
(b) where the employer is a religious or a charitable institution to which the provisions of section 41 do not apply and the whole or any part of its income is exempt from the tax under the Income-tax Act, then, with respect to the income so exempted, such institution shall be treated as if it were a company in which the public are substantially interested within the meaning of that Act;
(c) where the employer is an individual or a Hindu undivided family, the tax payable by such employer under the Income-tax Act shall be calculated on the basis that the income derived by him from the establishment is his only income;
(d) where the income of any employer includes any profits and gains derived from the export of any goods or merchandise out of India and any rebate on such income is allowed under any law for the time being in force relating to direct taxes, then, no account shall be taken of such rebate;
(e) no account shall be taken of any rebate other than development rebate or investment allowance or development allowance or credit or relief or deduction (not hereinbefore mentioned in this section) in the payment of any direct tax allowed under any law for the time being in force relating to direct taxes or under the relevant annual Finance Act, for the development of any industry.
Clause-by-clause explanation
| Clause | Effect for Code on Wages calculation |
|---|---|
| Section 35(a)(i) | Past accounting-year losses carried forward under direct-tax law are ignored for this special calculation. |
| Section 35(a)(ii) | Arrears of depreciation carried forward under section 32(2) of the Income-tax Act are ignored. |
| Section 35(b) | For the specified exempt income of a religious or charitable institution to which section 41 does not apply, the institution is treated in the manner stated in the provision for this calculation. |
| Section 35(c) | For an individual or Hindu undivided family employer, tax is calculated on the assumption that income from the establishment is the employer's only income. |
| Section 35(d) | A qualifying rebate relating to export profits is disregarded when calculating direct tax under the Code. |
| Section 35(e) | Specified rebates, credits, reliefs or deductions for industrial development are dealt with according to the exclusions and exceptions stated in the clause. |
Why Section 35 is important for bonus calculation
Under Section 34, direct tax payable by the employer is one of the prior charges deducted from gross profits, subject to Section 35. Section 33 also uses a Section 35 direct-tax calculation while determining available surplus. Section 35 therefore standardises the tax figure used in the statutory bonus computation rather than simply adopting every feature of the employer's ordinary taxable-income computation.
Related legal provisions
Sections 31 and 32 deal with payment of bonus out of allocable surplus and computation of gross profits. Sections 33 and 34 deal with available surplus and sums deductible from gross profits. Section 36 deals with set-on and set-off of allocable surplus, while Section 41 identifies cases in which Chapter IV does not apply.
Official legal resources
For authoritative verification, refer to the Code on Wages, 2019 on India Code, the 21 November 2025 commencement notification, and the Code on Wages (Central) Rules, 2026. For establishments in the State sphere, the applicable State rules and notifications should also be verified.
Last reviewed: 16 September 2026.