Deduction Under Section 80JJAA - Towards Additional Employment in Units

Section of 80JJAA of Income Tax Act, 1961 has been amended with effect from 1st of April 2017 with the following objectives:

1. To facilitate job creation and employment generation.
2. To promote cashless economy by mandating the employers to make payments by banking channels.
3. To achieve better profitability by helping the Organisations reduce their Employee Cost by providing additional deduction.

Applicability:

The Section is applicable to all the assesses who are earning income under the head Business and Profession and Tax Audit Provisions under section 44AB are applicable i.e., Gross Sales should be more than Rs.1.00 Crore in a financial year.

Benefit:

The assessee can claim deduction of 30% of additional employee cost incurred  during the year as expenditure, for a period of 3 assessment years.

Conditions:

1.       New Recruitments should be made in the previous year starting i.e.: from financial year 2016-17 which results in an increase in the number of employees from the total number of employees employed as on the last day of the preceding year i.e, 31.03.2017.

2. The Gross Salary of such additional employee should be less than Rs.25,000/- per month.
3. Should mandatorily contribute to a Recognised Provident Fund.
4. The employee should be employed for a period of 240 days or more in the previous year.
5. Emoluments should be paid by an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account.

Requirements:

The assessee shall furnish Form 10DA along with the Return of income duly certified by Chartered Accountant.

To comply with above, we advise to maintain separate Record, showing details such as Name of the Employee, Designation, Gross Salary particulars, Deductions, Net Salary paid, Bank Account details if payment is made through NEFT/Online transfer. It is also advised to maintain personal file of such employee containing his/her Profile/Resume, copy of Certificates, Address and other proofs, etc. These will facilitate easy verification and will enable us to claim correct amount under the said Section.

Illustration:

ABC Ltd. started its operations in FY 2012-13. As on March 31, 2016, it had 82 employees. During the previous year 2016-17, it employed additional 20 employees. Salaries paid to each of these additional employees is Rs. 15,000/- per month. All the salaries were paid through Account Payee Cheques. Out of these 20 additional employees, 15 were appointed on 01 June 2016; while 5 were appointed on 01 December 2016. All the other conditions as prescribed under section 80JJAA of the Act have been complied with. Now, ABC Ltd. wants to know how much deduction can it claim under section 80JJAA for the previous year 2016-17 i.e. Assessment Year 2017-18.

Application of section is as follows:

The total number of employees as on the last day of the earlier previous year was 82. New additional employees satisfying the eligibility criteria set out in section 80JJAA is equal to 20. However, out of these 20, only 15 were employed for 240 days or more. As such, deduction is restricted to 30% of the additional employee cost of only these 15 employees.

Deduction U/s 80JJAA = 15 Employees X Rs. 15,000 X 10 Months X 30% = Rs. 6,75,000/-

Accordingly, ABC Ltd. shall be eligible to deduction of Rs. 6,75,000/- each under section 80JJAA for 3 Assessment Year starting from Assessment Year 2017-18.