The Income Tax Act of India offers several tax deductions to help reduce the taxable income of individuals and businesses. One such deduction is under Section 80JJA of the Income Tax Act, which allows tax deductions to employers who generate employment in the formal sector. This deduction is provided against Income From Business for an assessee who has hired additional employees during a fiscal year. It allows employers to claim a deduction of up to 190% of additional employee costs incurred while employing new eligible employees.
By providing a tax deduction, the government aims to incentivise employers to hire more people and thereby reduce the rate of unemployment in the country.
Let's read further to understand this deduction. I have kept it simple so it's easy for a layman to understand.
To check the applicability, first of all there should be a net increase in the number of employees in the current year (Joinees-Leftees) from the employees present as on the first day of the year (All on roll employees).
If applicability is there, then only an Assessee can claim the deduction for the FY, and one can claim the deduction only for the additional employees for which you have to check as per following:-
Additional (Eligible) Employees refer to an employee who has been employed during the financial year but does not include the following:
- Employees whose total salary is more than Rs. 25,000/- per month (Paid or Payable).
- 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 a Recognised Provident Fund, like casual workers, etc.
- Employees whose entire contribution is paid by the Government under the Employees' Pension scheme
*{paid or payable to an employee in lieu of his employment by whatever name called but does not include the contribution by the employer to a pension fund, provident fund or any payment paid or payable to an employee at the time of termination of his service or Voluntary retirement example: Gratuity, severance pay, voluntary retrenchment benefits, leave encashment, commutation of pension, etc} include overtime payment
If the above conditions are satisfied then you can say the employee an Additional Employee and can claim the deduction for their salary paid during the FY for three consecutive assessment years. (30% each year of additional eligible employee costs)
One catch here is like in the year preceeding to the PY, if you have employees who has not completed their 240 days then you can club those employees in the current PY to claim as deduction for the salary paid to them in PY.
Who Is Not Eligible to Claim Deduction
The following enterprises are not allowed to claim deduction under this section:-
(a) if the business is formed by splitting up or the reconstruction of an existing business:
This clause shall not apply in respect of a business which is formed as a result of re-establishment, reconstruction or revival by the assessee;
(b) if the business is acquired by the assessee as a result of any business reorganisation;
(c) The business should not be formed by transfer of ownership or reconstruction of an existing business.
d) Businesses engaged in the service sector.
Take a look at this example:
Let's say that V Ltd is a manufacturing business. In FY 2023-24, the total employee cost of the business was Rs. 50 lakh, and the business employed 200 employees. In FY 2024-25, he hired an additional 100 employees and paid them Rs. 25 lakhs.
Additional employee cost incurred by V Ltd in the financial year 2024-25 can be calculated this way:
Additional employee cost in the FY 2024-25 = Rs. 25 lakhs
Deductions available for the financial year 2024-25 would be calculated as follows:
Deduction under Section 80JJA = 30% of the additional employee cost
= 30% of Rs. 25 lakh = Rs. 7.5 lakh
Therefore, V Ltd can claim a deduction of Rs. 7.5 lakh under Section 80JJA for the financial year 2024-25.
Docs Required to vet the deduction amount:-
- Form 10DA: A report certified by a Chartered Accountant must be submitted.
- It certifies the amount of deduction claimed.
- Must be filed at least one month before the due date of filing the income tax return.
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