Section 80JJAA of the Income Tax Act provides deductions for the recruitment of new or additional employees. It is intended to encourage employers to hire new employees periodically. The main focus of this deduction to generate employment in all sectors of the Indian economy.
BENEFIT OF AVAILING 80JJA DEDUCTION:
- Additional deduction of 30% of additional employee cost incurred in the previous year, for three assessment years
- Total Benefit – 90% including the assessment year relevant to the previous year in which such employment is provided
APPLICABILITY CRITERIA
The Assessee must be subject to tax audit u/s 44AB;
- Benefit available only in case of Business; (Professionals not covered)
- Business must not be formed by splitting up, or the reconstruction, of an existing business;
- Business must not be acquired by way of transfer from any other person or as a result of any business reorganization
- The Assessee must furnish CA’s report in form 10DA before the Tax Audit due date
Period of deduction
Deduction is available for 3 Assessment years starting from the year in which the employment is provided.
Meaning of additional employee cost
a) In the case of an existing business, the term “additional employee cost” refers to the cost of hiring more employees
- Total emoluments paid or payable to new employees hired in the previous year
- It would, however, be NIL if
- The total number of personnel employed on the last day of the previous year has not increased; or
- Emoluments are paid in a non-banking or non-electronic manner.
b) For the first year of company, the term “additional employee cost” refers to the cost of hiring additional employees.
• Emoluments paid or payable to workers during the preceding year are considered additional employee costs.
Meaning of additional employee:
- Employed throughout the previous year and whose employment has the effect of raising the total number of employees employed by the company as of the previous year’s last day, but does not include part-time employees.
- Employees earning more than Rs 25,000 per month;
- Employees for whom the government pays the complete payment under the Employee Pension Scheme
- Employee who has worked for fewer than 240 days (150 Days for business of manufacturing of apparel or footwear or leather products)
- Employees who do not have a PF account
What will happen if employee employed for less than 240 days?
If a new employee is employed for fewer than 240 days in his first year of work, but is employed for 240 days or more in the next year, he is considered to be employed in the following year.
Conclusion:
The creation of jobs will always be the major goal of all economies, which is why the government has provided extra advantages under the Income Tax Act of 1961.
Author
Chandhini
