Section 80JJAA: Deduction For Employment of New Employees

Section 80JJAA of the Income Tax Act plays a significant role for Indian businesses by providing tax deductions to entities promoting employment generation within the industry. This section reflects the government’s initiative to foster economic growth, job creation, and the industry’s overall development. It will encourage businesses to expand their workforce and provide more employment opportunities in the formal sector, leading to the overall growth of the economy.

What is Section 80JJAA?

Section 80JJAA of the Income Tax Act provides tax deductions to the entities engaged in employment generation. This deduction is available to businesses that have hired additional employees during the financial year. It allows employers to claim a deduction of up to 190% of the additional employee cost incurred towards salaries and wages paid to the new employees.

Meaning of Additional Employees

As per section 80JJAA additional employee means an employee employed during the previous year but does not include the following:

• An employee whose salary is more than INR 25,000 p.m.
• An employee employed for less than 240 days in a year (150 days in case of manufacturing of apparel, footwear, or leather products)
• An employee whose contribution is paid by the Government under the Employees Pension Scheme.
• Employees who don’t participate in the Recognised Provident Fund.

Applicability of Section 80JJAA

This section applies to the entities who are required to get their books of accounts audited u/s 44AB and the gross total income includes profit and gains derived from business. The section 80JJAA is not available in the following situations:

• A person having receipts from a profession.
• If the business is set up by splitting or reconstruction of an existing business. However, the business can still claim the deduction if it is re-established, reconstructed, or revived.
• The business is not acquired by way of transfer from any other person.
• The business has not furnished its income tax return and a CA report in Form 10DA.

Deduction u/s 80JJAA

Section 80JJAA provides a deduction of 30% of the additional employee cost for a continuous period of 3 Assessment Years including the current AY in which the employment is provided. However, the amount of deduction will remain the same for all the 3 years despite changes in the salary of the employee or even if some employees leave the organization.

Further, to claim the deduction u/s 80JJAA the business needs to fulfill the following conditions:

• The business should be operational for at least 240 days in the previous year.
• The business should have employed at least 10 individuals during the year.
• No deduction u/s 80JJAA has been claimed by the business in the previous year.

The benefit of Section 80JJAA is also available under the New Tax Regime.

Tip

The benefit of Section 80JJAA is also available under the New Tax Regime.

Form 10DA

An assessee must furnish this mandatory form to claim the deduction under section 80JJAA of the Income Tax Act. The following points should be considered while filing the form 10DA:

• Form 10DA is to be filed at least 1 month before the due date of return filing.
• Form 10DA is to be prepared online on the income tax website.
• The form needs to be verified with the help of DSC.

Example

XYZ Ltd. is running a business and appoints the following employees during the Financial year 2022-23

The deduction will be available u/s 80JJAA as mentioned below:

Case 1: In this, the employee has worked for more than 240 days and also the salary amount doesn’t exceed INR 25,000 per month. Hence, the company is eligible for deduction.

Case 2: In this, the employee has worked for less than 240 days, and hence the company is not eligible for deduction.

Case 3: In this, the company has paid more than INR 25,000 p.m to the employee and hence, they will not be able to claim the deduction.

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