Section 80JJA - Deduction In Respect Of Employment Of New Employee

Section 80JJA – Deduction In Respect Of Employment Of New Employee

Deduction in Respect of Employment of New Employee Under Section 80JJA: To promote employment generation activities, the Indian Government has introduced Section 80JJAA. Section 80JJA was substituted by Finance Act 2016, which came into effect from FY 2016-17. The 80JJA renders the deduction to an employer for generating employment. The 80JJA section applies to all corporate and non-corporate assessee. It is also suitable for non-resident conducting business in India. It is applicable to an assessee to whom section 44AB applies, i.e. applicable to a person who is obliged to get his account audited by an accountant. A deduction is permitted where the total gross income of an assessee constitutes any profits and gains obtained from the business. Therefore, the deduction is not open to an assessee taking on any other profession.

Who Can Claim the Deduction?

A deduction is available to the assessee who is expected to get his ledgers of accounts audited under Section 44AB, and their income should include profit and gains received from the business. The deduction will not be allowed if the business is created by dividing or renovating an existing business. It does not include those circumstances in which the business is re-constructed or re-established or restored due to the reason asserted under Section 33B (flood, riot, fire, earthquake, typhoon, explosion, enemy attack etc.) Even if the business is procured by transference from any other person, the assessee will not be able to claim the deduction.

Section 80JJA Deduction Structure

  1. The deduction is equivalent to 30% of the additional employee cost for three consecutive assessment years starting from the preceding year in which such additional cost is incited in the course of such business. An assessee must file an income tax return and a Chartered Accountant report in Form 10DA to claim a deduction like that.

For Example: If additional employee cost acquired during the previous year 2018-19 is Rs. 1,00,000, then deduction under section 80JJA will be :

  • 2019-20: Assessment Year: Rs. 30,000
  • 2020-21: Assessment Year: Rs. 30,000
  • 2021-22: Assessment Year: Rs. 30,000

If the business is new, the deduction will be available in the preceding year in which the business is organised and in every subsequent previous year in which employment has been granted. In the case of an Existing Business, the deduction is available during the last year in which the job has been given

Additional Employee Cost

The total emoluments expended or payable to additional employees employed during the previous year are termed additional employee costs. The additional employee cost shall be nil in an existing business if there is no increase in employees’ number from the total number of employees hired as on the last day of the preceding year.

  • Additional employee cost” in case of an existing business shall not require emoluments paid contrarily of banking channels.
  • In the first year of business operation, emoluments paid to employees hired during the preceding year shall be considered to be the additional employee cost.
  • In the first year, emoluments can be paid in cash instead of by any other banking channel.

The additional employee does not include :

  • If an employee whose total emoluments is higher than Rs. 25,000/- per month and does not partake in the approved provident fund.
  • When the Government pays the intact contribution for the employer under the Employees’ Pension Scheme in line with the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.
  • It also does not support if an employee does not partake in an approved provident fund or is employed for less than 240 days during the previous year.

Emoluments

A compensation, based on time and length of activity, for employment, services, or holding office and is frequently used in a legal context is termed as Emoluments. Emoluments include any sum payable or paid to employees by any name, e.g. salary, bonus etc.

Emoluments do not include any amount paid or payable by the employer to any provident fund or pension fund or any additional fund for the interest of the employee under any law for the time being in force, also if any lump-sum amount paid or payable to an employee at the time of their service termination, superannuation or voluntary retirements, such as leave encashment, commutation of pension etc.

FAQ’s on Deduction in Respect of Employment of New Employee Under Section 80JJA

Question 1.
Who can claim an 80JJA deduction?

Answer:
Section 80JJA was rewritten in 2016 to extend the employment generation incentive to all sectors. It was implemented so that the deduction under the said provisions shall be available in respect of cost acquired on any employee whose total emoluments are less than or equal to Rs. 25,000 per month.

Question 2.
What is Form 10DA?

Answer:
The assessee is needed to submit a report in Form 10DA. Such report shall be approved by a practising Chartered Accountant and expected to be furnished electronically along with the income tax return of the assessee for alleging deduction under Section 80JJA.

Question 3.
Which parts of salary are included in the term “Emoluments” used in this section?

Answer:
Any sum paid or payable to employees by any name is incorporated in Emoluments; however, it should not incorporate the employer’s benefaction to statutory funds and Lump sum payment at the time of termination or voluntary retirement such as leave encashment etc.

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