The Government of India, to promote employment generation activities, had introduced Section 80JJAA under Chp. VIA of Income Tax Act, 1961 which allows for deduction in respect of employment of new employees. Section 80JJAA enables an employer to enjoy tax incentive or you can say – “cashback” for payment of salaries to new employees employed by him. These incentive were first introduced in the year 2016 but were limited only to some specific assessees. Later on the section was amended through various Finance acts to ultimately allow almost every business to enjoy benefits or rather deduction under this section.
APPLICABILITY
Any assessee having income from business and liable for tax audit u/s 44AB
DEDUCTION
Quantum of Deduction
30% of additional employee cost incurred during the previous year in course of business.
Period of Deduction
Deduction is available for 3 assessment years starting from the year in which the employment is provided.
No Deduction :-
a) if the business is formed by splitting up, or the reconstruction, of an existing business; OR
b) if the business is acquired by way of transfer from any other person or as a result of any business reorganisation; OR
c) unless the assessee furnishes alongwith the ITR, a report by a CA in Form 10DA electronically.
Calculation of Deduction
30% of additional employee cost incurred during the previous year in course of business
“Additional Employee Cost” (AEC) = Total Emoluments paid or payable to Additional Employees employed during the previous year.
In case of First Year of Business:
AEC = All Emoluments Paid/payable to employees employed during that first year.
In case of Existing Business:
Additional Employee cost is = 0 (NIL), IF-
- There is no increase in number of Employees from total number of employees employed as on last day of the preceding year,
OR
2. Emoluments are paid otherwise than by
– Account payee cheque OR
– Account payee bank draft OR
– ECS through a bank account.
For the calculation of AEC we need to understand the meaning of additional employee and Emoluments
An Additional Employee
includes An employee who has been employed during the previous year & whose employment has the effect of increasing the total number of employees employed as on the last day of the preceding year but
Excludes
| (a) an employee whose total emoluments are more than INR 25000 per month; or (b) an employee for whom the entire contribution is paid by the Government under the Employees’ Pension Scheme notified in accordance with the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952); or (c) an employee employed for a period of less than 240 days during the previous year [150 days in the case of an assessee who is engaged in the business of manufacturing of apparel or footwear or leather products] (Provided Where an employee is employed during the previous year for a period of less than 240 days or 150 days, as the case may be, but is employed for a period of 240 days or 150 days, as the case may be, 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) ; or (d) an employee who does not participate in the recognised provident fund. |
Emoluments
Any sum paid or payable to an employee in lieu of his employment e.g. salary, bonus etc.
But Excludes
| (a) 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; and (b) 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 etc. |
Example for Better understanding
M/s Risha Controls, Manufacturer having Turnover of 100 Crores in PY 19-20. As on 31st March 2019, there were 200 employees in total from which 5 Employees retired on 5th May, 2019. On 1st June 2019, the firm recruits 15 employees. M/s Risha Controls pays equal emoluments to the newly appointed employees as follows:
– Salary =15000 Per Month
– Bonus & Incentives = 2000 Per Month
– Other Perquisites = 7000 Per Month
Calculate Additional Employee Cost & Deduction as per section 80JJAA for Ay 2020-21.
Ans:- Total Employees as on the last day of the Previous year i.e. as on 31/03/2019 = 200.
Additional Employee = Employee employed during the current year due to which net total number of employees has been increased from last year.
= Total Employees on last day of the previous year (on 31/03/2019) + New Employees appointed on 1st June – Employees left/retired on 5th May) – Total Employees on last day of the previous year (on 31/03/2019)
= (200+15 – 5)- 200
= 10 Employees
Emoluments = Rs 15000+2000+7000 = Rs.24000 per month
Additional Employee Cost (AEC)
= Total Emoluments * Additional Employees
= (15000+2000+7000)*10 Employees*10 Months
= 24,00,000
Deduction u/s 80JJAA
= 30% of Additional Employee Cost
= 30% of 2400000
= Rs.7,20,000/-
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