Section 80JJAA - Deduction in Respect of New Employees Recruited

Section 80JJAA of the Income Tax Act, 1961 is a tax incentive for employment generation and provides for deduction from INCOME FROM BUSINESS of an assessee for the employment of new employees by the assessee. This deduction is provided in order to promote employment generation in the country. This deduction if claimed, can provide deduction up to 190% of the expenses incurred towards salaries and wages paid to the new employees.

WHO CAN CLAIM DEDUCTION U/S 80JJAA?

Any entity whose GROSS TOTAL INCOME includes PROFIT OR GAINS derived from any BUSINESS. Therefore, the deduction is not available to an assessee carrying on any profession. And

Entity who is subject to TAX AUDIT under SECTION 44AB of the Act. And

The assessee incurs ADDITIONAL EMPLOYEE COST which results in an increase in the total number of employees (ADDITIONAL EMPLOYEES) employed as at the end of the previous year as compared with the immediately preceding previous year.

But there are certain entities which satisfy the above conditions but cannot claim deduction under 80JJAA. No deduction is allowed if:

?1. A person is having receipts from profession.

2. If the business is formed by splitting up, or the reconstruction, of an existing business.

However, this condition shall not 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. Section 33B specifies the following circumstances where the business of any industrial undertaking carried on in India is discontinued in any previous year by reason of extensive damage to, or destruction of, any building, machinery, plant or furniture owned by the assessee and used for the purposes of such business as a direct result of—

?(a)??flood, typhoon, hurricane, cyclone, earthquake or other convulsion of nature; or

?(b)???riot or civil disturbance; or

?(c) accidental fire or explosion; or

(d)??action by an enemy or action taken in combating an enemy (whether with/ without a declaration of war)

and such business is re-established, reconstructed or revived by the assessee, within a period of 3 years from the end of the previous year in which such business is discontinued

3. If the business is acquired by the assessee by way of transfer from any other person or as a result of any business re-organization.

?4. If assessee fails to furnishes along with the return of income the report of the chartered accountant, as defined in the Explanation to section 288 i.e., Form 10DA electronically. Rule 19AB of the Income Tax Rules, 1962 specifies that the report of an accountant which is required to be furnished by the assessee along with the return of income under clause (c) of sub-section (2) of section 80JJAA shall be in Form No.10DA. From AY 2020-21, the report in Form 10DA shall be required to be furnished by the assessee at least one month prior to the due date of filing of return of income prescribed u/s 139(1)

5. An employer who is not registered with EPFO .

MEANING OF ADDITIONAL EMPLOYEES FOR SECTION 80JJAA

?According to section 80JJAA, "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,

- An employee whose TOTAL EMOLUMENTS are more than Rs. 25,000 p.m.; or

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; or

An employee employed for a period of less than 240/150* days during the previous year; or

*An assessee who is engaged in the business of manufacturing of apparel or footwear or leather products the additional employee shall be required to be employed for a period of at least 150 days and in other cases 240 days.

?An employee who does not participate in the RECOGNISED PROVIDENT FUND; or CONTRACTUAL EMPLOYEES, PART-TIME EMPLOYEES and CASUAL WORKERS do not participate in the provident fund scheme and hence are not eligible for deduction.

Note: If the employee joined late during the year and his 240/150 days get completed in next year, then this employee will be counted as a newly recruited employee in the next year.

MEANING OF ADDITIONAL EMPLOYEE COST FOR SECTION 80JJAA According to section 80JJAA,

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?"ADDITIONAL EMPLOYEE COST" means TOTAL EMOLUMENTS PAID OR PAYABLE to additional employees employed during the previous year.

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In case of an EXISTING BUSINESS, the additional employee cost shall be NIL,

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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;

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(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 such other electronic mode as may be prescribed.

In case of a NEW BUSINESS, in the first year, emoluments paid or payable to employees employed during that previous year shall be deemed to be the additional employee cost.

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MEANING OF EMOLUMENTS FOR SECTION 80JJAA

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?As per Section 80JJAA, "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;

(b)???and 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.

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QUANTUM OR AMOUNT OF DEDUCTION UNDER SECTION 80JJAA

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?Section 80JJAA provides for deduction of an amount equal to 30 PERCENT 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 subject to fulfilment of conditions specified in section.

The quantum of deduction will remain constant for all the three years, despite subsequent changes in employment status or salary levels.