Tax Incentive for additional employee cost u/s 80JJAA: An Analysis

Mikdad Merchant | Last updated: 19 September 2020

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Quick Summary

Section 80JJAA of the Income Tax Act 1961 encourages businesses to hire more staff by offering tax deductions. To qualify, businesses must meet several criteria, including being subject to tax audit and ensuring new employees earn under £25,000 monthly, are paid via bank transfer, and work for at least 240 days. The deduction is 30% of the additional employee cost and can be claimed for three assessment years.

Before I delve into my topic of discussion, lets have a little background of Section 80JJAA of the Income Tax Act 1961. Background Section 80JJAA was introduced to incentivise employing additional workforce. The section was amended by Finance Act 2016 and then again by Finance Act 2018. I have

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FAQ :

Section 80JJAA was introduced to incentivise businesses to employ additional workforce by providing tax deductions on additional employee costs.

Key conditions include being subject to tax audit, having profits from business not formed by splitting or reconstruction, obtaining Form 10DA, incurring additional employee cost, and ensuring eligible employees are paid under £25,000 monthly, paid via bank transfer, employed for 240+ days (or 150 days for apparel/footwear/leather goods), and covered under the PF scheme.

The deduction amount is 30% of the additional employee cost for eligible employees who meet the specified conditions.

The deduction is available for a period of three assessment years, starting from the assessment year relevant to the previous year in which the eligible employees were employed.

If an eligible employee is employed for less than 240 days (or 150 days for specific industries) in the first year but works for 240 days or more in the immediately succeeding year, they are deemed to have been employed in the succeeding year for the purpose of this section.