Deduction u/s 80JJA (Income Tax) – Additional Employee Cost

The deduction available under Section 80JJAA of the Income Tax Act, 1961 (‘Act’) incentivize the organizations for generating employment and allows an additional 30% deduction of the additional employee cost for 3 assessment years (‘AYs’) beginning with the AY in which additional employee cost is incurred.

Eligibility
If it satisfies all of the conditions as stated below:
♦ Undertaking business and subject to audit u/s 44AB of Act; AND
♦ Total No. of employees are more than the Total No. of employees in Preceding Year; AND
♦ Furnishes Form 10DA (Certification by CA) one month before due date of filing of return

Exceptions:
In the following cases the deduction for additional employee cost may not be available:
• The business was formed by splitting up of an existing business
• The business acquired by way of transfer from any other person or due to business re-organization

1) Who shall be considered as an additional employee?
The employee who meets the following criteria:
• Total emoluments equal to or less than INR 25,000 per month; and
• Employee whose entire contribution under EPS is not paid by Government; and
• Employed for a period equal to or more than 240 days during the previous year (150 days in case engaged in the business of apparel or footwear or leather products); and
• The employee is a participant to the recognized provident fund.

2) What should emoluments be composed of, or what factors should be taken into account when determining emoluments?
The most appropriate manner of computing the emoluments shall be as under:
Amount A = Total consideration paid to employee (such as but not limited to Basic pay, DA, Bonus (even paid annually), HRA, Special allowance, etc.) in a year of any nature except the following:
* 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; and
*  any lump sum payment paid or payable to an employee at the time of termination of his service or superannuation or voluntary retirement,
Total emoluments for purpose of Section 80JJAA = Amount A / 12

3) How is the amount of additional employee cost and deduction u/s 80JJAA computed?
Additional employee cost (B) = Total of Amount a for eligible employees during the year
Deduction u/s 80JJAA (C) = B (i.e. Additional employee cost) X 30%
The deduction is allowed for 3 years, including the AY in which the organization provides additional employment u/s 80JJAA.
The additional employee cost shall be considered as NIL in the following cases:
♦ Emoluments to employees are paid in cash
♦ The employees do not satisfy the criteria of additional employees as per the provisions of the Act.

4) The assessee carrying on profession eligible for deduction u/s 80JJAA?
No, the assessee carrying on business and subject to Tax audit can only avail the benefit u/s 80JJAA.

5) The assessee opting for the benefit of presumptive taxation (44AD) eligible for deduction u/s 80JJAA?
No

6) Assessee’s covered by the benefit of 115BAA (22% rates for domestic companies), 115BAB (15% rate for new manufacturing entity) are eligible to take benefit u/s 80JJAA?
Yes, they can avail the benefit of 80JJAA

7) Is an assessee who is entitled for the 115BAC benefit (new tax regime) also eligible for the 80JJAA benefit?
Yes, the benefit of 80JJAA can be availed even if the new rates as per 115BAC are availed by the assessee.

8) Entity established during the previous year shall be eligible to take benefit of 80JJAA for all additional employees since the preceding year total number of employees shall be 0?
Yes, the benefit shall be available to the assessee provided the additional employee satisfies the criteria as discussed in FAQs 1 & 3 above.