Section 80JJAA of the Income Tax Act, 1961, is a provision that provides a deduction to businesses for additional employment of new employees. The section encourages employers to generate employment opportunities and hire more employees. It is beneficial to all sectors but most beneficial to industries that are labour intensive.
The Finance Act, 2016 has amended the provisions of section 80JJAA of the Income-tax Act, 1961 (Act) to provide for an additional deduction of additional employee cost incurred by the taxpayer subject to fulfillment of certain conditions.
Here are the key features of Section 80JJAA:
Applicability:
- This section applies to corporate and non-corporate and is also available to eligible taxpayers engaged in the business of manufacturing, production, or development.
- This section applies to any assessee to whom section 44AB applies i.e. applicable to a person who is required to get his account audited by a Chartered Accountant.
Deduction is allowed where the gross total
income of an assessee, includes any profits and gains derived from business.-
Therefore, the deduction is not available to an
assessee carrying on any profession.
-
It is also applicable to non-resident carrying
on business in India
Eligibility Criteria:
To claim the deduction
under Section 80JJAA, businesses need to fulfill the following conditions:
- Any taxpayer whose gross total income includes any profits or gains from business and is liable to get his accounts audited u/s 44AB of the Act
- The business should be set up after the 1st day of April 2016 but before the 1st day of April 2021.
- The business should have employed additional employees in the previous year.
- The new employees must be employed for at least 240 days in the previous year.
- The new employees' monthly wages should not exceed Rs. 25,000 per month.
- You need to file an ITR within the due date and submit a CA report in Form 10DA.
- It should have employed at least 10 employees in the previous year.
It is important to note that deduction under Section 80JJAA is not available for businesses engaged in the service sector. If you are running a production-based business that meets the mentioned criteria, you can apply for the 80JJAA deductions.
The business is not formed by splitting up, or the reconstruction, of an
existing business. The business is not acquired by the taxpayer by way of
transfer from other person or by business reorganization Unless the taxpayer
provides a report by a Chartered Accountant in form 10DA.
However, this deduction shall be allowed if the business is
re-established, reconstructed, or revived by the taxpayer under the following
conditions: Any natural calamity like flood, typhoon, earthquakes, cyclone Riot
or civil disturbance Accidental fire or explosion Action by an enemy.
Deduction Amount:
The deduction allowed
under Section 80JJAA is 30% of the additional employee cost incurred during 3
assessment years including the previous year in which such employment is done.
The additional employee cost is the total emoluments paid or payable to the new
employees during the relevant period.
In case of Newly formed
business units
A deduction is available
in the previous year in which the business has been established and employment
is provided and in every subsequent previous year in which employment has been
provided.
In case of Existing
Business units
A deduction is available
in the previous year in which employment has been provided.
The additional employee
cost shall be nil if there is no increase in the number of employees from
the total number of employees employed as on the last day of the preceding
year.
If the new employees are
engaged in the Financial Year 2022-23, then Normal Salary expenses would
continue to be allowed under the Profile & Loss as expenses. Additionally,
30% of the additional employee’s salary for Financial Year 2022-23, 2023-24 and
2024-25 as additional deductions.
The same quantum of
deduction in the subsequent two years i.e. FY 2023-24 and FY 2024-25 will be
fixed at the amount of deduction claimed in FY 2022-23. The employer cannot get
additional benefit /deduction due to an increment in the employee’s salary.
Meaning of additional employee under section 80JJAA:
It means an employee
employed during the previous year. But it doesn’t include the following
employees:
- Whose salary is more than Rs. 25,000 per month
- Who is employed for a period of less than 240 days (150 days in case of
business of manufacturing of footwear or leather products.)
- Who doesn’t participate in recognized provident fund To whom
contribution is paid by the Government.
Additional Employees are
not included, if
An employee for whom the entire contribution is paid by the Government
under the Employees’ Pension Scheme notified in accordance with the provisions
of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
Additional employees recruited to fill the existing vacancies who left
the organisation shall not be considered as new employment opportunity
creation.
Meaning of additional
employee cost under section 80JJAA:
It includes all
emoluments paid or payable to an employee during the previous year.
In the case of existing
business, this cost will be NIL if:-
1) There is no increase in the total number of employees as compared to the
total number of employees employed in the last year.
2) Emoluments NOT paid through account payee cheque or account payee bank
draft or by use of electronic clearing system.
Meaning of emoluments:
under section 80JJAA
It includes all the sums
paid or payable to the employee during employment but does not include:
Contributions payable by the employer to any pension fund, provident
fund, etc.
Sums paid to the employee at the time of termination of service/
voluntary retirement such as gratuity, leave encashment, voluntary retrenchment
benefits and the like.
Form 10DA for claiming deduction under section 80JJAA:
It contains a report to
be filed by a Chartered Accountant that contains the details of the taxpayer
and the amount of deduction that is claimed by the taxpayer. It is filed along
with the return of income to be filed by the taxpayer. It must be submitted
online on the Income Tax website. A Digital Signature Certificate (DSC) is
mandatory to file this form.
Bare Act provisions of Section 80JJAA Deduction in respect of employment of new employees
Section 80JJAA
(1) Where the gross total income of an assessee to whom section 44AB
applies, includes any profits and gains derived from business, there shall,
subject to the conditions specified in sub-section (2), be allowed a deduction
of an amount equal to 30% of additional employee cost incurred in the course of
such business in the previous year, for 3 assessment years including the
assessment year relevant to the previous year in which such employment is
provided.
(2) No deduction under sub-section (1) shall be allowed, —
(a) If the business is formed by splitting up,
or the reconstruction, of an existing business:
(b) Provided that nothing contained in this
clause shall apply in respect of a business which is formed as a result of
re-establishment, reconstruction or revival by the assessee of the business in
the circumstances and within the period specified in section 33B;
(c) If the business is acquired by the assessee
by way of transfer from any other person or as a result of any business
re-organisation; (d) Unless the assessee furnishes along with the return of
income the report of the accountant, as defined in the Explanation to section
288 giving such particulars in the report as may be prescribed.
Explanation.
For the purposes of this section—
(i) “Additional employee cost” means the
total emoluments paid or payable to additional employees employed during the
previous year. Provided that in the case of an existing business, the
additional employee cost shall be nil, if—
(a) There is no increase in the number of
employees from the total number of employees employed as on the last day of the
preceding year;
(b) Emoluments are paid otherwise than by an
account payee cheque or account payee bank draft or by use of electronic
clearing system through a bank account or through such other electronic mode as
may be prescribed. Provided further that in the first year of a new business,
emoluments paid or payable to employees employed during that previous year
shall be deemed to be the additional employee cost.
(ii) “Additional employee” means an
employee who has been employed during the previous year and whose employment
has the effect of increasing the total number of employees employed by the
employer as on the last day of the preceding year, but does not include—
(a) An employee whose total emoluments are more
than twenty-five thousand rupees per month; or
(b) An employee for whom the entire
contribution is paid by the Government under the Employees’ Pension Scheme
notified in accordance with the provisions of the Employees’ Provident Funds
and Miscellaneous Provisions Act, 1952 (19 of 1952); or (c) An employee
employed for a period of less than 240 during the previous year; or
(d) An employee who does not participate in the
recognised provident fund:
Provided that in the case of an assessee who is engaged in the business of
manufacturing of apparel or footwear or leather products, the provisions of
sub-clause (c) shall have effect as if for the words “240”, the words “150” had
been substituted:
Provided further that where an employee is employed during the previous year for a
period of less than 240 days or 190 days, as the case may be, but is employed
for a period of 240 days or 150 days, as the case may be, in the immediately
succeeding year, he shall be deemed to have been employed in the succeeding
year and the provisions of this section shall apply accordingly.
(iii) “Emoluments” means any sum paid or
payable to an employee in lieu of his employment by whatever name called, but
does not include—
(a) Any contribution paid or payable by the
employer to any pension fund or provident fund or any other fund for the
benefit of the employee under any law for the time being in force; and
(b) Any lump-sum payment paid or payable to an
employee at the time of termination of his service or superannuation or
voluntary retirement, such as gratuity, severance pay, leave encashment,
voluntary retrenchment benefits, commutation of pension and the like.
Form 10DA under
Section 80JJAA
Rtn. Paku Kalyanarama Sastry
https://www.linkedin.com/in/pakukalyanaramasastry/
CEO of https://thehub.org.in
M - +91-8870779121
E – ceo@thehub.org.in
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