Step for claiming deduction under section 80JJAA: Deduction in respect of employment of new employees

Deduction under section 80JJAA

Applicability and quantum of deduction under section 80JJAA of the Income tax act:

The taxpayer having Income from the business head and is liable to get his accounts audited under section 44AB of Income Tax Act, 1961 shall be allowed a deduction of an amount equal to thirty per cent of 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 is provided.

Essential conditions to claim deduction under section 80JJAA:

(a)  The business of the taxpayer should not be formed by splitting up or reconstructing of an existing business;

(b)  The business should not be acquired by the tax payer as a result of transfer from another person or on account of business reorganization;

(c) The taxpayer has obtained a report in Form 10DA from a Chartered Accountant and furnished the same along with the return of income for the relevant assessment year;

(d)  The emoluments have been paid either through an account payee cheque or an account payee bank draft or by use of an electronic clearing system through a bank account

Identification of an Additional Employee?

An employee whose recruitment amounts to an increase in the total workforce of the establishment and an employees who fulfils following condition :-

1. An employee whose total monthly emoluments does not exceed Rs. 25,000/- in any month during the relevant financial year.

2. An employee who participates in a recognized provident fund;

3. An employee employed for a period of more than 240 days during the relevant financial year (i.e. joining on or before 3rd July of the relevant financial year)

4. An employee for whom the entire contribution is not paid by the Government under the Employees’ Pension Scheme notified in accordance with the provisions of the Employees’ Provident Funds

5. Must be an employee as on last day of the financial year.

6. An eligible employee (who fulfils all above condition except condition no 3) appointed in the previous financial year and has not completed 240 days in previous financial year i.e. joined after the 3rd July of previous financial year.

Computation of additional emoluments eligible for deduction:

Eligible additional emoluments refer to the total emoluments paid to the new employees employed in an establishment during the relevant financial year excluding the following cost:

a.  Any amount contributed by the employer towards the benefit of any employee in the nature of provident fund or pension fund or any other fund;

b.  Any lump-sum amount paid or payable to an employee at the time of termination of service or superannuation or voluntary benefit in the nature of gratuity, severance pay, leave encashment, pension and the like.

Steps to claim deduction under section 80JJAA