Home > Income Tax > Miscellaneous > Deduction in respect of employment of new employee under Section 80JJA

Deduction in respect of employment of new employee under Section 80JJA

Section 80JJA has been substituted by Finance Act 2016 (with effect from FY 2016-17) which provide the deduction to an employer for generating employment.

Eligibility for claiming the deduction

Available to that assessee: –

  • who is required to get his books of accounts audited under Section 44AB and
  • income include profit and gains derived from business.

Exception
No deduction shall be allowed if:-

  • Business is formed by splitting up or the reconstruction of an existing business. However, does not cover those case in which the business is re-constructed or re-established or revived due to the reason mentioned under Section 33B (flood, typhoon, earthquake, riot, fire, explosion, enemy attack etc.)
  • Business is acquired by way of transfer from any other person or a result of the business reorganization.

Amount of Deduction

The deduction equal to 30% of the amount of additional employee cost for 3 consecutive assessment years beginning from the previous year in which such additional cost is incurred in the course of such business. To claim such deduction, an assessee is required to file an income tax return along with the report of a Chartered Accountant in Form 10DA.

Calculation of Deduction

For calculating the deduction under Section 80JJA, the assessee has to find out the following things: –

  • Additional Employee
  • Emoluments
  • Additional Employee Cost

Additional Employee

Means an employee who has been employed during the previous year and has the effect of increasing the total number of employees as on the last day of the preceding year but does not include: –

  • an employee whose total emoluments are more than Rs 25,000.
  • an employee for whom the entire contribution is paid by the Government under the Employee’s Pension Scheme notified in accordance with the provisions of the Employee’s Provident Funds and Miscellaneous Provision Act 1932
  • an employee who has been employed for a period of less than 240 days in the previous year. In case the assessee is engaged in the business of manufacturing of apparel then the minimum employment period is 150 days. However As per Finance Act 2018, following additional changes will be applicable for the financial year 2018-19: –
    • The limit of 150 days also applied to assessee engaged in the business of manufacturing of footwear or leather products.
    • where an employee is employed during the previous year for a period of less than 240 days (or 150 days) but is employed for a period of 240 days (or 150 days) in the immediately succeeding year, he shall be deemed to have been employed in the succeeding year and the provisions of this section shall apply accordingly.
  • an employee who does not participate in the recognized provident fund.

Emoluments

Emoluments mean any sum paid or payable to an employee in lieu of his employment by whatever name called but does not include: –

  • 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
  • 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.

Additional Employee Cost

Additional employee cost means total emoluments paid or payable to additional employees employed during the previous year:

In the case of an existing business, the additional employee cost shall be nil in the following cases: –

  • 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:

Note: – In the first year of a new business, emoluments paid or payable to employees employed during that previous year shall be deemed to be the additional employee cost.

 

Examples

ABC Pvt. Ltd. is incorporated on 25th April 2014 and engaged in the business of plywood manufacturing. He has 200 employees as on 31st March 2017.

 

a) The company employed 50 new employees during the financial year 2017-18 out of which 15 employees resigned before 31st March 2018. No old employees resign during the financial year 2017-18.

Details Number of Employees
(a) Number of the employee as on the last day of the preceding year. 235
(b) Number of the employee as on the last date of the previous year. 200
(c) Increase in the number of the employee from the total number of the employee employed as on the last day of the preceding year (a)-(b). 35
(d) Number of additional employee* employed during the year. 50
(e) Number of the additional employee entitled for deduction i.e. not exceeding the number of increase in the number of employees as computed in (c). 35

 

b) CoThe company employed 50 new employees during the financial year 2017-18 out of which 15 employees resigned before 31st March 2018. Also, 30old employees resign during the financial year 2017-18.

Details Number of Employees
(a) Number of the employee as on the last day of the preceding year. 205
(b) Number of the employee as on the last date of the previous year. 200
(c) Increase in the number of the employee from the total number of the employee employed as on the last day of the preceding year (a)-(b). 5
(d) Number of the additional employee* employed during the year. 50
(e) Number of the additional employee entitled for deduction i.e. not exceeding the number of increase in the number of employees as computed in (c). 5

 

c) The company employed 50 new employees during the financial year 2017-18 out of which 15 employees resigned before 31st March 2018. Also, 50 old employees resign during the financial year 2017-18.

Details Number of Employees
(a) Number of the employee as on the last day of the preceding year. 185
(b) Number of the employee as on the last date of the previous year. 200
(c) Increase in the number of the employee from the total number of the employee employed as on the last day of the preceding year (a)-(b). 0
(d) Number of the additional employee* employed during the year. 50
(e) Number of the additional employee entitled for deduction i.e. not exceeding the number of increase in the number of employees as computed in (c). 0

 

d) The company employed 500 new employees during the financial year 2017-18, whom details are as follow: –

Class Number of Employees Date of Joining Total monthly emoluments per employee Employee resigned during the year
A 100 01st May 2017 30,000 10
B 200 01st May 2017 22,000 30
C 150 12st Nov 2017 21,000 12
D 50 12st Nov 2017 12,000 13
Total 500 65

Also, 50 old employees resign during the financial year 2017-18.

 

Calculation of additional employee employed during the year

Details Number of Employees
Total number of new employees employed during the year 500
Less: Employee which are having emoluments exceeding Rs 25,000 per month (Class A) 100
Less: Employee which worked less than 240 days in the financial year 2017-18 (Class C + Class D) 200
Additional employee employed during the year before considering resignation 200
Less: Employee resigned during the financial year 2017-18 (Class B) 30
Number of the additional employee employed during the year 170

Calculation of additional employee entitled for deduction

Details Number of Employees
(a) Number of the employee as on the last day of the preceding year. 585
(b) Number of the employee as on the last date of the previous year. 200
(c) Increase in the number of the employee from the total number of the employee employed as on the last day of the preceding year (a)-(b). 385
(d) Number of the additional employee* employed during the year. 170
(e) Number of the additional employee entitled for deduction i.e. not exceeding the number of increase in the number of employees as computed in (c). 170

e) In the above example, the emoluments paid or payable to the additional employee entitled for deduction is Rs 36,00,000.

Deduction under Section 80JJAA will be Rs 10,80,000 (30% of Rs 36,00,000) for the financial years 17-18, 18-19 & 19-20.

Points on which no clarification is available

  1. When the additional employee employed during the year exceeds the number of the additional employee entitled for deduction, in such case, no specific clarification is available for selecting the additional employee for computing the emoluments paid to avail deduction.
  2. Monthly emoluments condition is required to be satisfied each month? If monthly emoluments paid for a particular month exceeds Rs 25,000, would lead to such employee not being an additional employee or would not be considered only for that one month.

Form 10DA

The assessee is required to submit a report in Form 10DA. Such report shall be signed by a practicing Chartered Accountant and required to be furnished electronically along with the income tax return of assessee for claiming deduction under Section 80JJAA.

Link to download Form 10DA

About Prateek Agarwal

Prateek Agarwal is a Practicing Chartered Accountant from Jaipur and been in practice for more than 7 years. He writes mainly about GST and Finance.

Leave a Reply

Your email address will not be published. Required fields are marked *

Are you a CA or Tax Practitioner?

Check/Confirm GSTR-3B and GSTR-1 status of all clients in one go
No username or password required - Only GSTIN Required

KNOW MORE
close-link