Budget 2015-16 Deduction for employment of new workmen extended to benefit to all assessees having manufacturing units instead of only corporate assessees.  Further, in order to enable the smaller units to claim this incentive, it is proposed to extend the benefit under the section to units employing even 50 instead of 100 regular workmen.

The existing provisions contained in section 80JJAA of the Act, inter alia, provide for deduction to an Indian company, deriving profits from manufacture of goods in a factory. The quantum of deduction allowed is equal to thirty per cent of additional wages paid to the new regular workmen employed by the assessee in such factory, in the previous year, for three assessment years including the assessment year relevant to the previous year in which such employment is provided.

Clause (a) of sub-section (2), inter alia, provides that no deduction under sub-section (1) shall be available if the factory is hived off or transferred from another existing entity or acquired by the assessee company as a result of amalgamation with another company. Explanation to the section defines “Additional wages” to mean the wages paid to the new regular workmen in excess of hundred workmen employed during the previous year.

With a view to encourage generation of employment, it is proposed to amend the section so as to extend the benefit to all assessees having manufacturing units rather than restricting it to corporate assessees only. Further, in order to enable the smaller units to claim this incentive, it is proposed to extend the benefit under the section to units employing even 50 instead of 100 regular workmen.

Accordingly, it is proposed to amend sub-section (1) of the aforesaid section. It is also proposed to amend clause (i) of the Explanation so as to provide “additional wages” to mean the wages paid to the new regular workmen in excess of fifty workmen employed during the previous year.

These amendments will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years.

Note On Relevant Clauses of Finance Bill 2015

Clause 22 of the Bill seeks to amend section 80JJAA of the Income-tax Act relating to deduction in respect of employment of new workmen.

The existing provisions contained in sub-section (1) of the aforesaid section, inter alia, provide for deduction to an Indian Company, deriving profits from manufacture of goods in a factory. The quantum of deduction allowed is equal to thirty per cent. of additional wages paid to the new regular workmen employed by the assessee in such factory, in the previous year, for three assessment years including the assessment year relevant to the previous year in which such employment is provided.

Clause (a) of sub-section (2), inter alia, provides that no deduction under sub-section (1) shall be available if the factory is hived off or transferred from another existing entity or acquired by the assessee company as a result of amalgamation with another company.

The Explanation to the said section defines “additional wages” to mean the wages paid to the new regular workmen in excess of one hundred workmen employed during the previous year.

It is proposed to amend sub-section (1) of the said section so as to provide that where the gross total income of any assessee includes any profits and gains derived from the manufacture of goods in a factory, the assessee shall be allowed a deduction equal to thirty per cent. of additional wages paid to the new regular workmen employed by the assessee in such factory, in the previous year, for three assessment years including the assessment year relevant to the previous year in which such employment is provided.

It is further proposed to amend clause (a) of sub-section (2) so as to provide that no deduction under sub-section (1) shall be allowed, if the factory is acquired by the assessee by way of transfer from any other person or as a result of any business re-organisation.

It is also proposed to amend clause (i) of the said Explanation so as to provide “additional wages” to mean the wages paid to the new regular workmen in excess of fifty workmen employed during the previous year.

These amendments will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016- 17 and subsequent years.

Extract of Relevant Clauses from Finance Bill 2015 proposing amendment to Income tax Act, 1961


( Compiled by CA Ankit Banka & Taxguru Team)

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3 responses to “Sec. 80JJAA Deduction extended to Non Company Assessees”

  1. Alois Staffing says:

    80JJAA is applicable to Manpower Supply Agency who is Service provider Unit.?

  2. Avinash Kumar says:

    Since it is mandatory that workman should have worked minimum 300 days in previous year:

    Kindly guide me on following practical issue:

    We are existing unit:

    Suppose we have 100 workers @ 10000 p.m total wages 1,20,00,000/- during FY 2014-15.

    During FY 2015-16 we have appointed 50 new workers @ 10000 p.m, out of 50 workers 30 have joined on 1st May, 2016 and rest have joined 1st July.

    How deduction will be calculated.

    Those workers not completed their 300 days during FY 2015-16 but continued till 31.03.2017, will deduction be available during FY 2016-17 for these workers.
    Thanks a lot in advance.

  3. Dolly says:

    Provision states that if two companies are amalgamated, deduction u/s. 80JJAA is not available.

    My query :

    When such amalgamated company will be eligible to claim such deduction u/s. 80JJAA??

    I mean whether non-availability of deduction is restricted to the year of amalgamation only?? Can amalgamated company claim deduction after year of amalgamation?

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