Applicability of of Section 80JJAA of Income Tax Act 1961:

-Assessee who are covered under Section 44AB.

-Profit & Gains derived from business.

Amount of Deduction under Section 80JJAA of Income Tax Act 1961:

  • 30% of additional employee cost.
  • Three Assessment years including assessment year relevant to the previous year in which such employment is provided.

♦ Additional employee cost means the total emoluments paid or payable to additional employees employed during the previous year.

♦ Additional Employee cost is Nil in the following circumstances.

  • 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.
  • 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]:

♦ Rule 6ABBA:

The following shall be the other electronic modes for the purposes of clause (d) of first proviso to section 13A, clause (f) of sub-section (8) of section 35AD, sub-section (3), sub-section (3A), proviso to sub-section (3A) and sub-section (4) of section 40A, second proviso to clause (1) of Section 43, sub-section (4) of section 43CA, proviso to sub-section (1) of section 44AD, second proviso to sub-section (1) of section 50C, second proviso to sub-clause (b) of clause (x) of sub-section (2) of section 56, clause (b) of first proviso of clause (i) of Explanation to section 80JJAA, section 269SS, section 269ST and section 269T, namely:-

  • Credit Card;
  • Debit Card;
  • Net Banking;
  • IMPS (Immediate Payment Service);
  • UPI (Unified Payment Interface);
  • RTGS (Real Time Gross Settlement);
  • NEFT (National Electronic Funds Transfer); and
  • BHIM (Bharat Interface for Money) Aadhar Pay;

♦ 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.

♦ The following are not considered as additional Employee:

(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; 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.

In the business of manufacturing of apparel or footwear or leather products, 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. 

Eg: Employee is employed for period of 239 days in FY 19-20 & 245 days in FY 20-21 then the Section 80JJAA applicable in FY 20-21 only.

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.

♦ Meaning of Emoluments:

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

♦ Exclusions of Emoluments:

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

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.

♦ No deduction in this section shall be allowed in the following situations:

(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) If the assessee not furnished [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.

Specified date one month prior to the due date for furnishing the return of income under sub-section (1) of section 139.

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 shall be in Form No.10 DA. 

Crux:

Form 10DA to be submitted with Tax Audit report and Return of Income.

*****

Extract of Section 80JJAA of Income TAx Act, 1961

Section 80JJAA Deduction for Salaries paid to 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[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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