Section 80JJAA- Deduction of 30% of Additional Employee Cost for an Assessee having business income.

Section 80JJAA of Income tax act ,1961 (As Amended by Finance Act,2017)

Overview

With a view to incentivise the employment generation across all the sectors in the country, the erstwhile provisions of Section 80JJAA of Income tax act are amended by The Finance Act, 2017 spreading the benefits of 80JJAA to all the business sectors in addition to the manufacturing sector.

We present to you some of the key points of this section.

Applicability

This section is applicable to every Assessee whose:

  • Total income in a financials year includes profits or gains from business
  • And is liable to Tax audit section 44AB of Income Tax Act.

Deduction Available u/s 80JJAA

The deduction available is 30% of Additional Employee Cost * incurred in the course of such business in the previous year on Additional employees**(as against “additional workman of manufacturing industry” under erstwhile definition).And such Deduction can be claimed for a period of 3 consecutive years by the Assessee providing such additional employment. This deduction can be claimed from the year in which the additional workers were employed.

Conditions to be Satisfied

This section is applicable to every Assessee whose:

  • The Business should not be formed by way of splitting up or reconstruction or business reorganization or transfer of an existing business
  • An Audit report in Form 10DA should be furnished electronically along with the income tax return of that financial year

Additional Employee Cost

Additional Employee

Let’s Understand

Example:

If total No. of employees as at 31-3-2016 is 100 and 10 eligible employees join in April 2016 - July 2016 and another 10 employees join in December 2016. 5 leave in March 2017, of which 3 joined in April 2016 and 2 joined in December 2016. Wages paid are Rs.4000/- per month per employee. What is the additional employee cost and what is the deduction available under section 80JJAA?

Though the new employees joined in the year is 20, the increase in total number of employees at year end is to be considered. So the total number of additional employees will be 15 (i.e.,100+10+10-5) but not 20.

To be eligible for deduction, the additional employees should not fall under any of the four conditions mentioned in the provisions. So, out of above 15 additional employees only 5 employees will be eligible (after reducing the 10 employees joined in December 2016 since they are not satisfying the time i.e, 240 days condition)

So the additional employee cost = 5(4000) = Rs.20000/-

And the Deduction available = 20000 X 30% = Rs.6000/-

Conclusion

On the whole the amendment is implemented with a view to create employment opportunities and increase the GDP of the country. The initiative is for the upliftment of the country and every concern should try to contribute to the creation of opportunities and in turn be a part of the government’s vision to create more employment and an industrial India.

Disclaimer:"The information contained herein is only for informational purpose and should not be considered for any particular instance or individual or entity. We have obtained information from publicly available sources, there can be no guarantee that such information is accurate as of the date it is received or it will continue to be accurate in future. No one should act on such information without obtaining professional advice after thorough examination of particular situation."

Prepared By

Srilekha Puvvadi

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Contact :

Ankit C Shetty

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