Deduction in respect of employment of new employees under section 80JJAA of the Income Tax act 1961 (“the act”) 15/06/2016 by Jose Zachariah, FCA

Deduction in respect of employment of new employees under section 80JJAA of the Income Tax act 1961 (“the act”) 15/06/2016 by Jose Zachariah, FCA

Far reaching   amendments have been made in Section 80JJAA of the Act bringing substantial benefits to a large number of Assesses carrying on business w.e.f   AY 2017-18.

This Section applies to all Assesses to whom Section 44AB of the Act applies.  Before the Amendment of this Section by Finance Act 2016 the benefit of deduction U/S 80 JJAA was available only to a certain class of Assessees deriving income from manufacturing of goods in a factory and that too only if the number of workmen exceeded 50. The benefit of deduction is now available to all assesses carrying on business irrespective of the number & whether the employees are workmen or not subject to certain conditions. The amount of deduction is equal to 30 % of additional employee cost incurred in the course of such business in the previous year. The benefit of deduction shall be availed for three Assessment years including Assessment year in which additional employment is incurred.

Conditions for availing deductions under section 80JJAA  :-

  • Business shall not be one formed by splitting up, or reconstruction of an existing business.
  • If the business is acquired by way of transfer or as a result of any business reorganisation , this section shall not apply.
  • The Assesses should furnish a report by a practicing Chartered Accountant along with the Return of Income in the specified format.

Computation of additional employee cost:-

  • Arrive at the number of Employees as on 31-03-2016 covered under Provident Fund Scheme.
  • Arrive at the number of Employees additionally employed during FY 2016-17.
  • The difference between the above shall be the additional employees.
  • Such additional employees should have been employed for a minimum period of 240 days during the previous year.
  • Deduction under Section 80JJAA is  30% of total emoluments paid to the additional employees.

Rules:-

  • The amount of Emoluments shall be paid only by Account Payee Cheque, Draft and Electronic Clearing System.
  • The deduction is available even in case of business started during F.Y. 2016-17. In that case, the entire emoluments paid to the employees are eligible to this Section.
  • The Emoluments shall not exceed Rs.25, 000/- Month.
  • The Employees should be participating in a Recognized Provident Fund.
  • Emoluments  does not include:-

(a) Contributions  to  Pension Fund, Provident Fund, or any other fund for the benefit of employees.

(b) Lump sum amount paid at the termination of service or superannuation or voluntary retirement, leave encashment etc..

Those who desire to avail deduction under this section, may go through this section and the relevent rules thoroughly. It may be clarified whether this deduction is available only in the year in which new employment is created or also for subsequent 2 years

Leave a Comment