Section 80JJAA: Deduction For Employment of New Employees

What is Section 80JJAA?

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 entities who have hired additional employees in a given fiscal year. The employers can claim a deduction of 30% of the additional employee cost incurred for hiring new eligible employees. This deduction starts from the year in which the new employment is given and can be claimed for a consecutive 3 years.

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What is the Eligibility Criteria for this Deduction?

Given below are the eligibility criteria for deduction under section 80JJAA -

• The new employees must be employed with the company for at least 240 days (150 days for the leather, apparel, and footwear manufacturing). This deduction is applicable only if the businesses -
  • Are liable for getting their accounts audited.
  • Required to file their income tax returns on time.
• Additionally, the employees must have been employed in the previous year and must have contributed to an increase in the overall number of employees.
• The monthly salary of employees should not be more than Rs.25,000.
• The employee should be a part of the Recognised Provident Fund.
• The business must have been operational for a minimum of 240 days in the previous year.
• The business must have hired a minimum of 10 new employees in the previous year.
• The business should not have claimed deduction under section 80JJAA for the same employees.

Note: The deduction under section 80JJAA is available under both the old and the new regimes.

Who is not Eligible to Claim a Deduction?

Given below are the conditions under which you cannot claim a deduction under section 80JJAA -

• If the business is formed by reconstructing or splitting up an existing business, it is not eligible. However, if a business is formed due to a revival or re-establishment by the assessee, it is eligible for the deduction.
• If the taxpayer acquires the business as a result of a business reorganization, this deduction cannot be claimed.
• The business is required to submit a report from a Chartered Accountant before the specified date in order to claim the deduction.

What is the Applicability of Section 80JJAA of the Income Tax Act?

Section 80JJAA allows businesses to claim a deduction up to 30% of the additional employee cost incurred. Here are the conditions businesses must meet to claim this deduction -

• Ownership Requirement - The business must be owned by one person. It must not be acquired by splitting or restructuring an existing business.
• Format Conditions - The business cannot be formed by dividing or reconstructing an existing business. However, a re-established business is eligible for such deduction.
• Compliance and Deductions - The business must file its ITR on time. Additionally, the claim must be certified by a CA by submitting Form 10DA.

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 having a total salary exceeding 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 an existing business, the additional employees' cost shall be NIL if:

• There is no increase in the total number of employees, which means the total number of employees who joined during the previous year is equal to the total number of employees who 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 an A/c payee cheque or account payee draft or any prescribed electronic mode ( like RTGS, NEFT, etc).
• Example: A Ltd was incorporated on 01 April, 2019, and employed 20 employees. Total emoluments paid during the year amount to 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 Some Important Points of Form 10DA?

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

• The due date of filing Form 10DA is as applicable to the assessee for return filing u/s 139(1)
• Form 10DA is submitted online on the Income Tax Department’s 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 50 additional employees during F.Y. 2018-19. Given below is additional information:

Calculation of deduction

First of all, let’s calculate the number 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, the 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, the salary is more than Rs. 25,000/-, hence not eligible to claim deduction.

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