Union Budget 2018- Incentive for employment generation
At present, under section 80-JJAA of the Act, a deduction of 30% is allowed in addition to normal deduction of 100% in respect of emoluments paid to eligible new employees who have been employed for a minimum period of 240 days during the year. However, the minimum period of employment is relaxed to 150 days in the case of apparel industry. In order to encourage creation of new employment, it is proposed to extend this relaxation to footwear and leather industry.
Further, it is also proposed to rationalize this deduction of 30% by allowing the benefit for a new employee who is employed for less than the minimum period during the first year but continues to remain employed for the minimum period in subsequent year.
This amendment will take effect, from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent assessment years.
Extract of Clause 27 of Finance Bill 2018
Clause 27 of the Bill seeks to amend section 80JJAA of the Income-tax Act relating to deduction in respect of employment of new employees.
The said section provides for a deduction of thirty per cent. of emoluments paid to a new employee for three years. In order to claim the deduction, the new employee must be employed for more than two hundred and forty days in the year of employment or one hundred and fifty days in case of business of manufacturing of apparel, subject to certain conditions.
It is proposed to amend the said section so as to provide that in the case of business of manufacturing of footwear or leather products, the minimum number of days of employment in the years of employment shall be one hundred and fifty days in place of two hundred and forty days.
It is further proposed to provide that where a new 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.
These amendments will take effect from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-2020 and subsequent years.
No such requirement/condition explicitly mentioned in the Act. So, in my opinion no problem in claiming deduction.
If there is no increase in the head-count then there will be no additional deduction in the case of new employee.
Is it necessary that the additional employees, in respect of whom the 30% deduction is claimed in the first year, should continue to be in employment in the Company in the next tow years also for claiming the deduction in the subsequent years?
Also what if the employee leaves and is replaced by new employee? Will the deduction be allowed for the replaced employee also in subsequent year given the fact that there is no increase in head count ?