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Section 80JJAA: New employee deduction

 What is section 80 JJAA: 

Section 80 JJAA of Income Tax Act, is a section which provides additional deduction to the employer in case additional employees are hired in a financial year. This section provides the benefit of claiming a deduction of 190% of additional employee cost when eligible employees are hired by a business.

Applicability of Section 80 JJAA:

The deduction under section 80 JJAA can be claimed while calculating the profit and gain of a business covered under section 44AB of the Income Tax Act. This section provides an additional 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.

The following conditions must be satisfied to claim the additional deduction:

1. The business should not be formed by splitting up or by reconstruction of an existing business;
2. The business should not be acquired by the assessee by way of transfer from any other person;
3. Form number 10DA should be furnished;
4. There should be an increase in the total number of employees from the total number of employees employed as on the last day of the preceding year;
5. The emoluments should be paid by account payee cheque or account payee draft or any prescribed electronic mode.

Additional employee means:

1. An employee who has been employed in the previous year and whose employment has the effect of increasing the total number of employees employed as on the last date of the preceding year;
2. An employee who has worked for more than 240 days during the previous year (150 days for an assessee engaged in the business of manufacturing of apparel or footwear or leather products)*;
3. An employee whose total emoluments are less than Rs.25,000 per month;
4. An employee who participates in the recognised provident fund and whose respective contribution is paid by the employer and the employee (does not includes employees whose entire contribution is paid by the Government, under the Employees’ Pension scheme);

*In case an employee is employed for less than 240days/ 150 days in the previous year, as the case may be, but is employed for more than 240 days/ 150 days in the succeeding year, then the deduction for the same can be claimed in such succeeding year.

Additional employee cost means:

Additional employee cost means total emoluments paid or payable to additional employees. Emoluments does not include:

1. 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

2. Any lump-sum payment paid or payable to an employee at the time of:

• Termination of his service or
• Superannuation or
• Voluntary retirement
• Example: gratuity, severance pay, voluntary retrenchment benefits, leave encashment, commutation of pension, etc.