India may be the fastest growing major economy in the world but that means little to the country’s 136 Crore people, many of whom continue to struggle to find the right kind of jobs. India’s unemployment rate stood at 7.97% in 2021 as compared to 6% in 2018 (Source: CMIE). With lakhs of young people joining the job hunt each year, India needs to create much more jobs.
Section 80JJAA was introduced by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999 for granting benefit to companies creating employment. However, benefit was restricted to a particular group of employer only. With a view to extend this employment generation initiative to all sectors, the section was rewritten vide Finance Act, 2016 and deduction under the said provisions was made available in respect of cost incurred on any employee whose total emoluments are less than or equal to twenty five thousand rupees per month, subject to other conditions provided under Section 80JJAA.
Most of the taxpayers are either unaware of the section or find it too difficult to understand in order to qualify for deduction. I tried to summarize the provision of section in easy language for the benefit of taxpayer.
Applicability:
How to compute amount of Deduction?
As per provisions of Section 80JJAA, amount of deduction shall be computed as thirty percent of total 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 was provided.
Further “additional employee cost” means the total emoluments paid or payable to additional employees employed during the previous year. In case of first year of business, Additional employee cost shall be the total emoluments paid/payable to employees employed during that first year.
Following shall be excluded while calculating additional employee cost
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.
Following shall be excluded from the eligible additional employee:
an employee whose total emoluments are more than twenty-five thousand rupees per month (Emoluments > 25000);
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
an employee employed for a period of less than two hundred and forty days during the previous year; (Exception: 140 days in case of Assessee who is engaged in the business of manufacturing of apparel or footwear or leather products)
an employee who does not participate in the recognised provident fund:
No deduction shall be allowed in following circumstances:
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 if the business is formed by splitting up, or the reconstruction, of an existing business (Exception: 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 (Reasons beyond control like flood, earthquake etc)) ;
if the business is acquired by the assessee by way of transfer from any other person or as a result of any business reorganisation;
To claim deduction under the aforesaid section, an Assessee shall furnish a report in FORM No. 10DA along with report under section 44AB.
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This article was very helpful to understand the section but I have few questions relating to it can please clarify them
1. Is tax audit compulsory to claim such deduction?
2. can we claim such deduction for 3 years even if the employee left the organization in second year?
3. what if the employee got hired at 25,000p.m. and later on his salary got increased to 30,000 p.m., should we claim deduction or not for such employees ?