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Section 80JJAA of Income Tax Act,1961 – Deduction on cost of new and incremental employees – A simplified explanation.
Section 80JJAA of the Income Tax Act, 1961 is a deduction which an assessee can claim on the emoluments paid to new and incremental employees during the previous year. Any assessee who has business income and is eligible for tax audit U/s 44AB of the Income Tax Act 1961 must avail the benefit of this deduction. From the Government’s point of view the objective of this deduction is to incentivize job creation in the economy.
The provisions of Section 80JJAA has been presented below in a simplified Q&A format for the benefit of the readers:
Page Contents
- 1.Which Types of Assesses can Avail the deduction U/s 80JJAA ?
- 2. What is the benefit available U/s 80JJAA ?
- 3. What is the meaning of Additional Employees?
- 3. What is the meaning of Additional Employee Cost and what are the conditions attached to it ?
- 4. What is the meaning of Emoluments ?
- 5. How is the deduction claimed ?
- 6. Essential Conditions for claiming the deduction
1.Which Types of Assesses can Avail the deduction U/s 80JJAA ?
- Assesses who is required to get audited U/s 44AB, and
- Assesses whose income includes any profits and gains derived from business
2. What is the benefit available U/s 80JJAA ?
- The Assessee shall be eligible for deduction of 30% of “additional employee cost“ incurred on additional employees i.e additional in comparison to preceding year.
- The deduction of 30% shall be available for three consecutive years.
3. What is the meaning of Additional Employees?
- An employee who was employed during the current financial year and whose employment has the effect of increasing the total number of employees from preceding year.
- The employee must be employed for a period of 240 days or more during the financial year.
- In case employed for less that 240 days in current year but employed for more than 240 days in next financial year, the benefit can availed in next financial yer.
- The total emolument of the employee shall not be more than Rs.25,000 per month.
- The employee must participate in a recognized provident fund.
3. What is the meaning of Additional Employee Cost and what are the conditions attached to it ?
- It means the total emoluments paid to additional employees in current financial year.
- However, it must be noted that deduction is allowed only on such additional employees who are incremental to employee count of preceding year. In other words the total count of employees should increase from preceding financial year. It should not be a mere case of replacement of employees.
- The emoluments should only be paid by way of electronic mode, account payee cheque or demand draft.
4. What is the meaning of Emoluments ?
- It means any sum paid to an employee in exchange for his/her employment services.
- It however does not include employer contribution to PF or pension fund
- Any lump sum payment paid at the time of termination or super annuation or voluntary retirement, leave encashment and gratuity.
5. How is the deduction claimed ?
- A straight 30% Deduction is available on incremental and additional employee cost for employees having total emoluments of Rs.25,000 or less for a period of three years.
- For Instance, if the total incremental additional employee cost in F.Y 2021-22 is Rs.1,00,000 , in F.Y 2021-22 is Rs.50,000 and in F.Y 2022-23 is Rs.1,20,000 then deductions will be claimed as given below :
| Tax Period | Deduction for the Period | ||||
| 20-21 | 21-22 | 22-23 | 23-24 | 24-25 | |
| 20-21 | Rs.1,00,000 | Rs.1,00,000 | Rs.1,00,000 | – | – |
| 21-22 | Rs.50,000 | Rs.50,000 | Rs.50,000 | ||
| 22-23 | Rs.1,20,000 | Rs.1,20,000 | Rs.1,20,000 | ||
| TOTAL | Rs.1,00,000 | Rs.1,50,000 | Rs.2,70,000 | Rs.1,70,000 | Rs.1,20,000 |
6. Essential Conditions for claiming the deduction
- It must be noted that deductions can be claimed only if a report by CA certifying the deduction is furnished along with the return of income in form 10DA.
- The deduction is also not available in case the business is formed by way splitting up or reconstruction of an existing business. Nor is it available whereby business is acquired by way of transfer from any other person.
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