Section 35: Calculation of direct tax payable by employer
Reviewed by Finin2min Editorial Desk · Last reviewed 30 August 2026
Prescribes how direct tax is calculated for bonus purposes, including adjustments for bonus and certain tax reliefs.
Principal remaining provisions commenced on 21 November 2025 under S.O. 5322(E), read with the earlier partial commencement; check section-specific footnotes in the current India Code text.
Provision / India Code ↗ · Official Act PDF ↗ · 2026 Central Rules ↗
Finin2min analysis — what the section actually does
Operative clauses
- 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…
- (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;
Provisos, explanations & qualifications
- No proviso/explanation was separately extracted from this section text.
Thresholds and timelines in the text
- 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…
- (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;
Actors expressly appearing in the text
Employer
Full statutory text — 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.How to apply this provision
- Primary statutory test — 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…
- Additional operative limb — (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;
- Numerical or timing control — 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…
- Evidence file — retain facts and records proving the role/status of: Employer.
Rules, forms and cross-references
Direct 2026 Central Rule mapping
Forms mapped
No prescribed form is directly mapped in the current concordance.
Other sections cited in this text
Related Labour Hub resources
A direct concordance is not exhaustive. Central/State jurisdiction, schemes, authority appointments, saved instruments and later notifications may change the practical route without changing the section wording.
Worked example
An employer configuring payroll for calculation of direct tax payable by employer should first identify the employee and wage period, then apply the exact provision and any linked rule. The system rule should be tested against a sample payslip and bank/payment record. A text point to test is: “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)”
Illustration only; it is not statutory text or a substitute for applying the actual facts, jurisdiction, current rule/scheme and official instrument.
Q&A — Section 35
What does Section 35 of the Code on Wages cover?
Prescribes how direct tax is calculated for bonus purposes, including adjustments for bonus and certain tax reliefs.
What is the main legal requirement or power in Section 35?
The first operative clause identified from the official text is: “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…” Read it with the remaining subsections and any proviso below.
Does Section 35 contain a proviso or explanation?
No standalone proviso or explanation was extracted from this section text. Check the full text below for clause-level qualifications.
What time limit, percentage or amount appears in Section 35?
The provision contains this numerical/time expression: “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…” Apply it only in the clause and context in which it appears.
Which 2026 Central Rules are linked to Section 35?
No direct Central Rule is recorded in the current concordance. That does not exclude a relevant scheme, notification, State rule or enabling provision.
Is Section 35 currently operative?
Principal remaining provisions commenced on 21 November 2025 under S.O. 5322(E), read with the earlier partial commencement; check section-specific footnotes in the current India Code text.
Source & verification trail
Act: Code on Wages, 2019 — official India Code PDF ↗
Central Rules: Code on Wages (Central) Rules, 2026 — G.S.R. 343(E), 8 May 2026 ↗
Official library: Ministry of Labour & Employment — Labour Codes ↗
Source check: 20 August 2026. Individual professional interpretation should be re-reviewed when the section, rules, notification, scheme, State overlay or controlling judgment changes.