Deduction under Income Tax section 80JJAA Additional Employee Cost

July 27, 2021 By Damodhar C Off

The deduction available under section 80JJAA of the Income Tax Act, 1961 (the ‘Act’) encourages organizations to generate employment and an additional 30% in additional employee cost for 3 assessment years (‘AYs’) commencing from AY Allows deduction. The additional employee cost that is borne.

Eligibility:

If it satisfies all the conditions mentioned below:

carrying on business and subject to audit under section 44AB of the Act; And

The total number of employees exceeds the total number of employees in the preceding year; And

Submits Form 10DA (Certification by CA) one month before the due date of filing of return

Exception:

The deduction for additional employee costs may not be available in the following cases:

FAQs:

Question No 1:  Who will be considered as additional employee?

Answer. Employee who meets the following criteria:

Total emoluments equal to or less than Rs.25,000 per month; And

Employees whose entire contribution under EPS is not paid by the Government; And

employed for a period equal to or more than 240 days during the previous year (150 days in the case of being engaged in the business of apparel or footwear or leather products); And

The employee is a participant of a recognized provident fund.

Question No 2:  What should be included in the emoluments or what factors should be considered while computing the emoluments?

Answer. The most appropriate method of computing emoluments would be as follows:

Amount A = Total consideration paid to the employee (such as but not limited to basic salary, DA, bonus (even paid annually), HRA, special allowance, etc.) of any nature except the following:

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

any lump sum payment payable or payable to an employee at the time of his termination or retirement or voluntary retirement,

Total emoluments for the purpose of section 80JJAA = Amount A / 12

Question No 3:  How is the amount of additional employee cost and deduction under section 80JJAA calculated?

Answer. Additional employee cost (B) = total amount for eligible employees during the year A

Deduction u/s 80JZA(C) = B (i.e. additional employee cost) x 30%

The deduction is allowed for 3 age groups including the age in which additional employment is provided by the organization under section 80JJAA.

Additional employee cost will be treated as zero in the following cases:

Employees are paid emoluments in cash

The employees do not meet the criteria of additional employees as per the provisions of the Act.

Question No 4: Is an assessee by profession eligible for deduction under section 80JJAA?

Answer. No, the assessee doing business and subject to tax audit can only get benefit under section 80JJAA.

Question No 5: Is the assessee opting for the benefit of presumptive taxation (44AD) eligible for deduction under section 80JJAA?

Answer. No

Question No 6: Assessees covered by profit of 115BAA (22% rates for domestic companies), 115BAB (15% rate for new manufacturing unit) are eligible to take benefits under section 80JJAA?

Answer. Yes, they can avail 80JJAA

Question No 7: Is an assessee covered by the benefit of 115BAC (New Tax Regime) eligible to take benefit under section 80JJAA?

Answer. Yes, 80JJAA can be availed even if the new rates as per 115BAC are availed by the assessee.

Question No 8: The organization established during the previous year would be eligible to take the benefit of 80JJAA for all additional employees as the total number of employees in the previous year would be 0?

Answer. Yes, the benefit will be available to the assessee provided the additional employee fulfills the criteria discussed in questions 1 and 3 above.