Section 80JJAA: Deduction For Employment of New Employees

What is Section 80-JJAA?

Section 80JJAA, a provision within the Indian Income Tax Act of 1961, aims to provide tax deductions to employers contributing to formal sector employment. This deduction pertains to Income From Business and is applicable to individuals or entities who have hired additional employees in a given fiscal year.

WHO IS NOT ELIGIBLE FOR DEDUCTION U/S 80JJAA

No deduction under sub-section (1) shall be allowed,—

(a) if the business is formed by splitting up, or the reconstruction, of an existing business:

Provided that nothing contained in this clause shall apply in respect of a business which is formed as a result of re-establishment, reconstruction or revival by the assessee of the business in the circumstances and within the period specified in section 33B;

(b) if the business is acquired by the assessee by way of transfer from any other person or as a result of any business reorganisation;

(c) unless the assessee furnishes the report of the accountant, as defined in the Explanation below sub-section (2) of section 288, before the specified date referred to in section 44AB giving such particulars in the report as may be prescribed3.

What is meaning of additional employees as per section 80-JJAA?

It means an employee who has been employed during the previous year but does not include the following:

• Employees whose total salary is more than Rs. 25,000/- per month.
• Employees who were employed for less than 240 days in the previous year (150 days in case of manufacture of apparel or footwear or leather products)
• Employees who do not participate in Recognised Provident Fund like casual workers, etc.
• Employees whose entire contribution is paid by the Government under the Employees’ Pension scheme

What is the additional employee cost as per section 80-JJAA?

Additional Employee Cost means total emoluments paid or payable to additional employees.

However, in the case of existing business, additional employees cost shall be NIL if:

• There is no increase in the total number of employees, which means the total no of employees joined during the previous year is equal to the total number of employees left during the previous year.
  Example:

  Particular	No. of Employees
  Total No. of employees as on 01 April 2019	100
  No. of employees joined during the year	20
  No. of employees left during the year	20
  Total No. of employees as on 31 March, 2020	100

• In the above example, there is no increase in the total number of employees, hence not eligible to claim deduction in this case.
• In the above example, if no. of employees joined was 30, then in that case, a deduction of employee cost for an additional 10 employees will be available.
• Emoluments are paid otherwise than by A/c payee cheque or account payee draft or any prescribed electronic mode ( like RTGS, NEFT etc).
• Example: A Ltd incorporated on 01 Apri, 2019 and employed 20 employees. Total emoluments paid during the year amounting Rs. 10 Lakhs, which is paid in cash.
• In the above case, deduction u/s 80-JJAA is available even if emoluments are paid in cash because A Ltd is a new entity.

What is the meaning of emoluments given in section 80-JJAA?

Emoluments mean any sum paid or payable to an employee in lieu of his employment by whatever name called, but does not include—

(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 for the time being in force;

(b) Any lump-sum payment paid or payable to an employee at the time of

• Termination of his service or
• Superannuation or
• Voluntary retirement

Example: Gratuity, severance pay, voluntary retrenchment benefits, leave encashment, commutation of pension, etc.

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What are the conditions to claim deduction u/s 80-JJAA?

Section 80JJAA in the Income Tax Act pertains to tax deductions related to business profits and gains. This section enables a deduction of 30% on increased employee expenses for a continuous period of three assessment years.

To claim the deduction under this section, following conditions need to be satisfied:

• The assessee must have Income from the Business Head, and he is liable to get his accounts audited as per the requirement of section 44AB along with a report of a CA in Form 10DA.
• It should be a new business. It should not be formed by splitting up or reconstruction of an existing business.
• Business is not acquired by way of transfer from any other person.
• Deduction should be claimed in the income tax return.

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What are some important points of Form 10DA?

Form 10DA is a mandatory form to be filed while claiming a deduction under section 80-JJAA. Given below are some important points related to Form 10DA:

• The due date of filing Form 10DA is as applicable to assessee for return filing u/s 139(1)
• Form 10DA is submitted online on income tax website.
• DSC is mandatory for filing Form 10DA but not with the help of EVC.

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What is deduction under Section 80-JJAA?

Determining the eligibility for additional employee cost deduction under Section 80JJAA involves considering specific criteria:

• Employees should earn a monthly salary not exceeding Rs. 25,000.
• They must have worked for more than 240 days in the preceding year.
• Employees should be affiliated with a recognized Provident Fund, including casual workers, etc.
• The Government should not have covered the entire EPF scheme contribution for the employees.

To qualify for a deduction under Section 80JJAA for your business, the following prerequisites should be met:

• Your business should have been in operation for a minimum of 240 days in the previous year.
• It should have employed at least 10 individuals during that year.
• No deduction under Section 80JJAA should have been claimed by the business in the previous fiscal year.

If the assessee satisfies all the conditions, then he is eligible to claim a deduction as given below:

30% of additional employee cost for 3 consecutive years

Example of section 80-JJAA

ABC Ltd., an existing company appoints following employees during the F.Y. 2018-19

Calculation of amount of deduction

Case 1 : In this case, assessee is eligible to claim the deduction since additional employees were employed for more than 240 days and salary is not more than Rs. 25,000/-

Case 2 : In this case, the assessee is not eligible to claim the deduction since amount of salary is more than Rs. 25,000/- p.m.

Case 3 : In this case, the assessee is not eligible to claim the deduction since no. of days employed are less than 240 days.

Example of section 80-JJAA

ABC Ltd appointed total no. of additional employees during F.Y. 2018-19 is 50. Given below are additional information :

Calculation of deduction

First of all let’s calculate no. of eligible additional employees

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** as calculated above

Case 1 : In this case, salary is not more than Rs. 25,000/-. However, additional no. of employees will not include the employees who did not participate in RPF and who were employed for less than 240 days.

Case 2 : In this case, salary is more than Rs. 25,000/- hence not eligible to claim deduction.

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