Understand section 80JJAA: Deduction wrt employment of new employees

 

A. Criteria
1. Any assessee who has business income and is subject to audit u/s 44AB
2. Business must not be formed by splitting up or reconstructing of an existing business
3. Business must not be transferred from any other person or as a result of any business re-organization.
4. Filing of Form No 10DA.

B. Deduction available
-Deduction of 30% of additional employee cost for 3 assessment years. (total deduction available- 90%).

C. Meaning of additional employees
- Additional employees means an employee employed during the previous year and whose employment has the effect of increasing the total no of employees as on the last day of the preceding year but does not include-
a) employees whose total emoluments are more than Rs. 25000 pm; or
b) employees for whom the entire contribution is paid by the govt under the Employee Pension Scheme; or
c) an employee employed for a period of less than 240 during the previous year; or
d) an employee who does not participate in the RPF

D. Meaning of additional employee cost
a) For existing business-
· total emoluments paid or payable to additional employees employed during the previous year
· However, it would be NIL if-
a) there is no increase in the no of employees;
(b) emoluments are paid otherwise than by an account payee cheque
b) For new business – this benefit would be available on emoluments paid or payable to all employees employed during the previous year

E. Emoluments
• means any sum paid or payable to an employee in lieu of his employment, but does not include
a) Employer contribution to any pension fund or any other similar fund
b) Any lump-sum payment at the time of termination of service, such as gratuity, leave encashment, voluntary retrenchment benefits, and the like.

F. Other important points
· All the above conditions need to be satisfied in the first year of claim. Once the assessee is eligible and quantum is determined in year 1, then the same will apply in year 2 & 3 regardless of whether the employee leaves the organization in the future year.
· Deduction under this section is available even if the assessee opts for new concessional tax regime as stipulated in sec 115BAA and 115BAB.
· One of the conditions is that the additional employee must be employed for a minimum period of 240 days, and if he resigns on or before the last day of the previous year, he is not eligible for a deduction.
· There is no threshold limit / upper limit for claiming deduction under this section
· This deduction is available even if only one new employee joined during the previous year.
· No deduction to a person opting for sec 44AD
· If in the year of employment, new employee doesn’t satisfy the criteria of 240 days, but he is employed for 240 days or more in succeeding year then he shall be deemed to be employed in the succeeding year & provisions of this section shall apply accordingly.