80JJAA: Deduction in respect of employment of new employees

This article is all about discussion on Section 80JJAA. As we all are aware that this is one of the important deduction under chapter VI-A since generally in case of an assessee opting to provision to sec 115BAA or Sec. 115BAB, all other deduction under Chapter VI-A will be not be allowed except to Sec. 80JJAA deduction on employment. This means, this deduction will continue even in case of those assessee who is opting for lower tax U/s 115BAA & Sec 115BAB. Now this article is covering the conditions for applicability, amount of deduction, some relevant terms alongwith extract of actual section and relevant forms.

Basic Conditions for applicability of Section 80JJAA:

1. The Assessee should have income from business

2. His business income should be applicable for Tax Audit u/s 44AB

3. The business should not be formed by splitting up or the reconstruction of an existing business

4. The business should not be acquired by the assessee by way of transfer from any other person or as a result of any business reorganisation

Amount of Deduction u/s 80JJAA:

A deduction of an amount equal to 30% of additional employee cost incurred in the course of such business in the previous year, for three assessment years including the assessment year relevant to the previous year in which such employment is provided.

Some important terms for better understanding of Section 80JJAA:

a) Additional Employee Cost:

The total emoluments paid or payable to additional employees employed during the previous year.

Note: In case of existing business, the additional employee cost shall be nil in case of following 2 situations —

(a) 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

b)  Additional employee:

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.

Note: The employee covered under following criteria will not considered as additional employee –

(a) An employee having total emoluments more than Rs. 25,000 per month or

(b) An employee for whom the entire contribution is paid by the Government under the Employees’ Pension Scheme or

(c) An employee employed for a period of less than 240 days during the previous year [150 days in case the assessee is engaged in the business of manufacturing of apparel or footwear or leather products (from AY 2019-20) ] or

(d) An employee who does not participate in the recognised provident fund

c) Emoluments:

Any sum paid or payable to an employee in lieu of his employment by whatever name called.

Note: Payments towards following purpose will not be considered as emoluments:

(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

(b) Any lump-sum payment paid or payable to an employee at the time of termination of his service or superannuation or voluntary retirement

Extract of section Section 80JJAA and rule 19AB are as under:

Section 80JJAA: Deduction in respect of employment of new employees

(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 thirty per cent of additional employee cost incurred in the course of such business in the previous year, for three 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:

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;

(b) if the business is acquired by the assessee by way of transfer from any other person or as a result of any business reorganisation;

(c) unless the assessee furnishes alongwith 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:

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 two hundred and forty days 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, the provisions of sub-clause () shall have effect as if for the words “two hundred and forty days”, the words “one hundred and fifty days” had been substituted;]

(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.

(3) The provisions of this section, as they stood immediately prior to their amendment by the Finance Act, 2016, shall apply to an assessee eligible to claim any deduction for any assessment year commencing on or before the 1st day of April, 2016.]

Rule 19AB

Form of report for claiming deduction under section 80JJAA. 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.”

Format of Form No 10DA alongwith annexure

In the principal rules, in Appendix II, for the ‘Form No. 10DA’, the following Form shall be substituted, namely:-

FORM NO. 10DA

As amended by Notification No. 104/2019-Income Tax dated 18 December, 2019

[See rule 19AB]

Report under section 80JJAA of the Income-tax Act, 1961

1. I/ We* have examined the accounts and records of _______________ (Name and address of the assessee with permanent account number) engaged in the business of ____________ during the year ended on 31st day of March ________________ .

2. I/We* certify that the deduction to be claimed by the assessee under sub-section (1) of section 80JJAA of Income-tax Act, 1961, in respect of the assessment year _____________ is Rs. ____________ determined on the basis of additional employee cost incurred in the case of said business by the assessee. The said amount has been worked out on the basis of details given in annexure to this form.

Place: _______________________

Date:  _______________________

__________________________________

(Signature and Stamp/Seal of the Accountant)

Name of the Signatory __________________

Full Address_______________________

Membership No

Notes:

1. *Delete whichever is not applicable.

2. This report is to be given by a chartered accountant within the meaning of the Chartered Accountants Act,1949 who holds a valid certificate of practice under section 6(1) of that Act and is not a person referred to in clause (a) or clause (b) of the Explanation below sub-section (2) of section 288.

3.Where any of the matter stated in this report is answered in the negative or with a qualification, the report shall state the reasons therefor.

ANNEXURE

(See paragraph 2 of Form No.10DA)

1.			Name of the assessee
2.			Address of the assessee
3.			Permanent Account Number/ Aadhaar number of the assessee
4.			Assessment Year
5.			Additional employee cost incurred
	(I)		In case of an existing business,-
		(a)	number of employee as on the last day of the immediately preceding year.
		(b)	number of employee employed during the previous year.
		(c)	number of additional employees*, the emoluments of whom is eligible for deduction under section 80JJAA,-
			(i)	employed during the previous year,	c(i)
			(ii)	employed     during      the       immediately preceding year	c(ii)
			(iii)	Total [c(i)+c(ii)]		c(iii)
		(d)	Total amount of emoluments ** paid or payable to additional employee entitled for deduction u/s 80JJAA in respect of,-
			(i)	additional employee referred in (c)(i)	d(i)
			(ii)	additional employee referred in ( c)(ii)	d(ii)
			(i)	Total amount # [d(i)+d(ii)]		d(iii)
		(e)	The amount of deduction eligible u/s 80JJAA in respect of payments for the emoluments paid or payable to the additional employee in respect of,-
			(i)	the previous year [30% of the amount computed in (d)(iii)]	e(i)
			(ii)	the immediately          preceding year to the previous year	e(ii)
			(iii)	the    year prior     to       the    immediately preceding previous year	e(iii)
			(iv)	Total [e(i)+e(ii)+ e(iii)]#		e(iv)
	II	In case of a new business, 30% of emoluments **paid or payable to additional employees employed during the first year of business,#.
6		Remarks.

 Notes:

1* “additional employee” means an employee who has been employed during the previous year or in the immediately preceding year, as the case may be, 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 two hundred and forty days (one hundred and fifty days in case of an assessee engaged in the business of manufacturing of apparel) during the previous year; or

(d) an employee who does not participate in the recognized provident fund;

2.** “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”

3. # The amount shall not include the emoluments, paid otherwise than by an account payee cheque or account payee bank draft or by way of a electronic clearing system through a bank account or through such other prescribed electronic mode. ’.

(Republished with Amendments)