PROVISIONS OF SECTION 80JJAA
QUANTUM AND PERIOD OF DEDUCTION:
Where the gross total income of an assessee to whom section 44AB applies, includes any profits and gains derived from business, a deduction of an amount equal to 30% of additional employee cost incurred in the course of such business in the previous year, would be allowed for three assessment years including the assessment year relevant to the previous year in which such employment is provided.
Eligibility Criteria
The deduction would be allowed only subject to the following conditions:
- The business should not be formed by splitting up, or the reconstruction, of an existing business
- The business is not acquired by the assessee by way of transfer from any other person or as a result of any business reorganisation
- The report of the accountant, giving the prescribed particulars, has to be furnished along with ROI
Definitons of Specific terms used
Additional employee cost :Total emoluments paid or payable to additional employees employed during the previous year.
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.
Exclusions from the definition
a) an employee whose total emoluments are more than ₹25,000 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; or
c) an employee employed for a period of less than 240 days during the previous year. In case of an assessee engaged in the business of manufacturing of apparel or footwear or leather products, an employee employed for a period of less than 150 days during the previous year, or
d) an employee who does not participate in the recognized provident fund.
Note :- If an employee is employed during the previous year for less than 240 days or 150 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. Accordingly, the employer would be entitled to deduction of 30% of additional employee cost of such employees in the succeeding year.
EMOLUMENTS
Any sum paid or payable to an employee in lieu of his employment by whatever name called.
Exclusions from the definition:
(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.
Q. Mr. Rhas commenced the business of manufacture of Electric lamps on 1.4.2021. He employed 350new employees during the P.Y.2021-22, the details of whom are as follows —
| No. of employees | Date of employment | Regular/Casual | Total monthly emoluments per Employee (₹) | |
| i. | 75 | 1.4.2021 | regular | 24,000 |
| ii. | 125 | 1.5.2021 | regular | 26,000 |
| iii. | 50 | 1.8.2021 | casual | 25,500 |
| iv. | 100 | 1.9.2021 | regular | 24,000 |
The regular employees participate in recognized provident fund while the casual employees do not. Compute the deduction, if any, available to Mr.R for A.Y.2022-23, if the profits and gains derived from manufacture of computers that year is ₹75 lakhs and his total turnover is 2.16 crores.
Q. What would be your answer if Mr.R has commenced the business of manufacture of footwear on 1.4.2021?
Ans. Mr. R is eligible for deduction under section 80JJAA since he is subject to tax audit under section 44AB for A.Y.2022-23, as his total turnover from business exceeds ₹ 1 crore and he has employed “additional employees” during the P.Y.2021-22.
If Mr. R is engaged in the business of manufacture of electric lamps
Additional employee cost = ₹24,000 x 12 x 75 [See Working Note below] = ₹ 2,16,00,000
Deduction under section 80JJAA = 30% of ₹ 2,16,00,000 = ₹ 64,80,000.
Working Note: Number of additional employees
| Particulars | No. of workmen | |
| Total number of employees employed during the year | 350 | |
| LESS: | Casual employees employed on 1.8.2021 who do not participate in recognized provident fund | 50
125 100 |
| Regular employees employed on 1.5.2021, since their total monthly emoluments exceed ₹25,000 | ||
| Regular employees employed on 1.9.2021 since the have been employed for less than 240 days in the P.Y.2021-22 | ||
| Number of “additional employees” | 75 | |
Notes
- Since casual employees do not participate in recognized provident fund, they do not qualify as additional employees. Further, 125 regular employees employed on 1.5.2021 also do not qualify as additional employees since their monthly emoluments exceed ₹25,000. Also, 100 regular employees employed on 1.9.2021 do not qualify as additional employees for the P.Y.2022-23, since they are employed for less than 240 days in that year.
Therefore, only 75 employees employed on 1.4.2021 qualify as additional employees, and the total emoluments paid or payable to them during the P.Y.2021-22 is deemed to be the additional employee cost.
- As regards 100 regular employees employed on 1.9.2021, they would be treated as additional employees for previous year 2021-22, if they continue fo be employees in that year for a minimum period of 240 days. Accordingly, 30% of additional employee cost in respect of such employees would be allowable as deduction under section 80JJAA in the hands of Mr. R for the A.Y. 2022-23
If Mr. R is engaged in the business of manufacture of footwear
If Mr. R is engaged in the business of manufacture of footwear, then he would be entitled to deduction under section 80JJAA in respect of employee cost of regular employees employed on 1.9.2021, since they have been employed for more than 150 days in the previous year 2021-22.
Additional employee cost = ₹ 2,16,00,000 + ₹ 24,000 x 7 x 100 = ₹3,84,00,000
Deduction under section 80JJAA = 30% of ₹ 3,84,00,000 = ₹ 1,15,20,000
Frequently Asked Questions
Q.1 Whether the deduction under section 80-JJAA is in addition to deduction u/s 37(1)?
Ans. Yes, deduction u/s 80-JJAA is in excess of deduction u/s 37(1). Hence, total deduction of additional employee salary expense come to 130%.
Q.2 Rk ltd. appoints 15 additional employees out of which 5 employees do not participate in Recognised Provident Fund. Whether Rk ltd. is eligible to claim deduction of All Employees?
Ans. Rk ltd can claim deduction in respect of 10 employees subject to other conditions, as 5 do not participate in Recognised Provident Fund.
Q.3 For how many years, we can claim deduction under this section.
Ans. Deduction under this section can be claimed for 3 consecutive years.
Q.4 Is deduction u/s 80-JJAA specific with any state or area ?
Ans. This deduction is not area specific deduction. This deduction is available to all assessee provided all conditions specified in this section is satisfied.
Q.5 Which components of salary are included in the term “Emoluments” used in this section?
Ans. Any sum paid or payable to employees by whatever name is included in Emoluments but does not include the following:
√ Employer’s Contribution to statutory funds
√ Lump sum payment at the time of termination or voluntary retirement or superannuation such as gratuity, leave encashment etc.
- Is there any maximum limit or threshold limit upto which deduction can be claimed under section 80-JJAA ?
Ans. The deduction under section 80-JJAA is 30% of additional employees cost. There is no threshold as such given in the section.
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Extract of Section 80JJA of Income Tax Act, 1961
Deduction in respect of employment of new employees.
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 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 [the report of the accountant, as defined in the Explanation below sub-section (2) of section 288, before the specified date referred to in section 44AB ] 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 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 or footwear or leather products, the provisions of sub-clause (c) shall have effect as if for the words “two hundred and forty days”, the words “one hundred and fifty days” had been substituted.
Provided further that where an employee is employed during the previous year for a period of less than two hundred and forty days or one hundred and fifty days, as the case may be, but is employed for a period of two hundred and forty days or one hundred and fifty 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.
(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.
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