Important Keyword: Deduction, Employment.
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Section 80JJAA: Deduction For Employment of New Employees
Under the provisions of Section 80JJAA in the Indian Income Tax Act, there exists a pivotal mechanism aimed at bolstering domestic businesses. This section serves as a cornerstone for enterprises striving to enhance job opportunities within their respective sectors. Its fundamental premise aligns with governmental objectives to invigorate economic progress, facilitate job creation, and propel industrial advancement. By availing tax deductions, businesses are incentivized to augment their workforce, thus catalyzing employment proliferation in the formal domain. This concerted effort not only benefits individual entities but also contributes to the holistic development of the nation’s economy.
What is Section 80JJAA?
Section 80JJAA of the Income Tax Act extends a valuable provision for businesses involved in job creation. This tax deduction opportunity is tailored for companies that have expanded their workforce during the fiscal year. It permits employers to claim deductions up to 190% of the additional costs incurred due to the employment of new personnel, encompassing salaries and wages disbursed to these recruits.
Defining Additional Employees
According to section 80JJAA, an additional employee refers to an individual employed within the preceding year, with exceptions outlined as follows:
Employees earning a monthly salary exceeding INR 25,000. Employees engaged for fewer than 240 days annually (or 150 days for manufacturing apparel, footwear, or leather products). Employees whose contributions are covered by the Government under the Employees Pension Scheme. Employees not enrolled in the Recognised Provident Fund.
Applicability of Section 80JJAA
This section is applicable to entities mandatorily subjected to audit under section 44AB, with their gross total income including profits and gains derived from business. However, certain scenarios preclude the utilization of section 80JJAA, including:
Professionally earned receipts. Businesses formed through division or restructuring of existing entities, although exceptions exist for businesses re-established, reconstructed, or revived. Businesses acquired without transfer from another entity. Businesses failing to furnish income tax returns and a CA report in Form 10DA.
Deduction under Section 80JJAA
Section 80JJAA offers a deduction of 30% of the additional employee costs over a continuous span of three Assessment Years, inclusive of the current AY when the employment commenced. Notably, the deduction amount remains consistent across the three years, irrespective of salary adjustments or employee departures.
Moreover, to qualify for the deduction under section 80JJAA, businesses must satisfy the following criteria:
Operational continuity for at least 240 days in the previous year. Employment of a minimum of ten individuals during the fiscal year. Absence of any previous claims for deduction under section 80JJAA.
Form 10DA
To avail the deduction under section 80JJAA of the Income Tax Act, it’s imperative for the assessee to submit Form 10DA. Here are the key considerations regarding filing this form:
- Timing: Form 10DA must be submitted at least one month before the due date for filing the return.
- Online Preparation: The form is to be meticulously prepared online via the official income tax website.
- Verification: It’s essential to validate the form using a Digital Signature Certificate (DSC).
Example
XYZ Ltd. is running a business and appoints the following employees during the Financial year 2022-23
| Case | No. of employees | Date of appointment | Salary (INR Per Month) |
| 1 | 12 | 01/05/2022 | 23,000 |
| 2 | 17 | 01/11/2022 | 24,000 |
| 3 | 15 | 01/07/2022 | 30,000 |
The deduction will be available u/s 80JJAA as mentioned below:
| Case | Total Salary (INR Per Annum) | Eligible Deduction (INR) |
| 1 | 30,36,000 (23,000*12*11) | 9,10,800 ( 30,36,000*30%) |
| 2 | 20,40,000 (24,000*17*5) | NIL |
| 3 | 40,50,000 (30,000*15*9) | NIL |
Scenario 1: In this scenario, where the employee has rendered services for more than 240 days and their monthly salary remains below INR 25,000, the company qualifies for the deduction under section 80JJAA.
Scenario 2: However, if the employee has worked for fewer than 240 days, the company becomes ineligible for the deduction.
Scenario 3: Similarly, if the employee’s monthly salary surpasses INR 25,000, the company forfeits its eligibility to claim the deduction.
Read More: Section 139(9): Defective Return Notice
Web Stories: Section 139(9): Defective Return Notice
Official Income Tax Return filing website: https://incometaxindia.gov.in/
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