Section 80JJAA – Deduction in respect of employment of new employees is allowed under Chapter VI-A of the IT Act. In case of an assessee opting to provision to sec 115BAA or Sec. 115BAB, all other deduction under Chapter VI-A will be not be allowed except to Sec. 80JJAA deduction on employment. This means, this deduction will continue even in case of those assessee  who is opting for lower tax U/s 115BAA & Sec 115BAB.

This deduction is available to those assessee whose gross total income include income from business and subject to Sec 44AB audit. The assessee who is satisfying the conditions mentioned in sub section 2 will qualify 30% of additional employee cost incurred in the course of business in the previous year , for three assessment years  including assessment year relevant to previous year in which such employment is provided.

Sub section 2, provides that no deduction shall be allowed in case of –

a. Business is formed by splitting up , or the reconstruction  of an existing business;

b. Business is acquired by way of transfer from any other person or as result of any business organization;

c. Assessee has to furnish report in the Form 10DA from Chartered Accountant.

Apart from above conditions, assessee has to satisfy following conditions in case of an existing business

i. There is net increase in the employment from last day of preceding year to last day of previous year. It means if there is no net increase in the employment from last day of preceding year to last day of previous year, Sec. 80JJAA deduction will not be allowed even though there might be additional employment however resignation is more than the employment. Above provision could be explained in the tabular format taking financial year 2019-20 as year of claim.

Particular No.
No. of employee as at 31.3.2019 1000
Add : Addition in FY 2019-20 50
Less : Resignation in FY 2019-20 100
No. of employee as at 31.3.2020 950

In the said table, though there is addition of 50 in the employment however resignation is more than additional employment, Sec. 80JJAA deduction will not be applicable.

ii. Salary should be paid in the form of account payee cheque, account payee bank draft or through such other electronic mode as may be prescribed by department. It means salary paid in the form cash, salary expense will not be allowed as deduction U/s 80JJAA

iii. Employee emoluments should not be more than twenty five thousand rupees per month. It means if there is employment and emolument determined @ 22,000/- pm and in the subsequent month there is revision to Rs. 26,000/- pm then in calculating deduction, emoluments for those month where salary paid Rs. 26,000/- will not be allowed. Same could be explained in the tabular format.

Name of the employee where addition made in the year
April
May
June
July
Aug.
Sep
Oct.
Nov.
Dec.
Jan
Feb.
March
Total
Eligible amount
‘P’
22000
22000
22000
22000
26000
26000
26000
26000
26000
2,180, 000
88000
‘Q’
19000
19000
19000
19000
19000
19000
19000
19000
19000
19000
19000
2,090, 000
2,09, 000
‘R’
24000
24000
24000
24000
24000
24000
24000
24000
24000
24000
30000
30000
3,00, 000
2,40, 0000
Total
 
 
 
 
 
 
 
 
 
 
 
 
7,27, 000
5,37, 000

Therefore, the eligible amount would be of Rs. 5,37,000 and not Rs. 7,27,000/-.

iv. Employee employed during the year should be payroll for two hundred and forty days or more. It means employee employed during the year, where no. of days for that employee is lesser than two hundred and forty days calculated as on 31st March, will not be eligible. Same could be explained in the pivot format. Exception is provided for assessee who is in the business of apparel, footwear or leather products where no. of days is kept of 150 days.

Nam of the employee Date of joining No. of days as at 31.3.2020 Eligible for deduction Not eligible for deduction
‘P’ 30.05.2019 306 Yes
‘Q’ 23.10.2019 160 No*
‘R’ 28.02.2020 31 No*

* As per second proviso inserted by the Finance Act, 2018, in the Explanation (ii) to sub section 2, employee who has not completed 240 days in the current year, however continue in the employment in the next year, and no. of days in the employment in the next year exceed two hundred and forty days, will qualify for deduction in the next year.

Therefore, only P’s emolument would be eligible for deduction.

v. Employee who does not participate in the recognized provident fund will not qualify for deduction.

In case of new business, employee employed in the previous year will qualify for deduction provided they satisfy the conditions from (ii) to (v) mentioned as above.

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