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deduction-u-s-80jjaa-deduction-in-respect-of-employment-of-new-employees

 

Deduction u/s 80JJAA: in respect of employment of new employees

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Introduction-

Deduction u/ 80JJAA are available to assessees, who engage in the manufacturing or production of article or thing in India, i.e. Indian Manufacturing Company.


If you are a new undertaking or an existing undertaking and your Gross Total Income includes income under the head ‘Profits & Gains from Business or Profession’ to which Tax Audit Provisions under section 44AB are applicable; you can claim deduction of 30% of “Additional employee cost” incurred in the course of such business during the relevant previous year, for a period of 3 assessment years; subject to the conditions prescribed in the section 80JJAA.


Additional employee cost means total emoluments paid or payable to additional employees employed during the previous year-
Casual workman & workman employed through Contract labour are not included in employee category.
In case of an existing business, the additional employee cost shall be nil, if--
  • There is no increase in the number of employees from the total number of employees employed during the previous year or
  • The Emoluments should be paid through “Account Payee Cheque” or “Draft” or “Electronic transfer”.
In case of new business-
  • In the first year of new business, emoluments paid or payable to employees employed during the previous year shall be deemed to be the additional employee cost.
  Example-
Mr. X has started manufacturing business of iron & steel in April 2017, the employed 100 employees on 01.04.2017 @ 20,000/- per month, 20 employees on 01.05.2017 @ 26,000/-, 10 employees on 01.01.2018 @ 22,000/- per month and also employ casual labour or contact labour around 30 employees on 01.07.2017 @ 15,000 per month. What will be the amount of deduction under section 80JJAA for the financial year 2017-18?
  Answer-
100 employees @ 20,000 for 12 months (01.04.17 to 31.03.2018)      =         2,40,00,000
20 employees @ 26,000 for 11 months (01.05.2017 to 31.03.2018)*      =              0
10 employees @ 22,000 for 3 months (01.01.2018 to 31.03.2018)*         =              0
30 employees @ 15,000 for 9 months (01.07.2017 to 31.03.2018)*         =              0
Total Wages paid = 2,40,00,000
Deduction is available u/s 80JJA for the F.Y. 17-18 amounting to Rs. 30% of Rs. 2,40,00,000 = 72,00,000
*Note- (20 employees are getting salary of more than 25,000) or (10 employees have been employed for less than 240 days) or (30 employees are casual and contract labour)
 
Eligibility of the Business u/s 80JJAA-
  • A business formed as a result of re-establishment, reconstruction or revival is considered for this deduction.
  • The business formed by splitting up or the reconstruction of an existing business is not eligible for this deduction.
  • The business acquired by the individual by transferring it from any other person or as a result of business reorganisation is not eligible.
 
Amount of Deduction u/s 80JJAA-
A deduction of 30% is allowed in addition to normal deduction of 100% in respect of emoluments paid to eligible new employees who have been employed for a minimum period of 240 days during the year under section 80-JJAA of the Income-tax Act. However, the minimum period of employment is relaxed to 150 days in the case of apparel industry, footwear industry and leather industry. Finance Minister proposed to rationalise deduction of 30% by allowing the benefit for a new employee who is employed for less than the minimum period during the first year but continues to remain employed for the minimum period in subsequent year. This deduction is allowed for a total period of 3 assessment years.  

Conditions to avail deduction u/s 80JJAA-
  • The deduction is available for Industry engaged in manufacturing in India.
  • Assessee is subject to audit under section 44AB. Certificate in form 10DA is also obtain from the Chartered Accountant and must be attached with the Income Tax Return.
  • Assessee’s Gross Total Income includes the profit & gains from such business.
  • The minimum number of employee’s under this section to avail deduction must be 50.
  • There must be an increase of 10% in total number of employees employed on the last day of the preceding financial year.
  • The employee should be employed for a minimum period of 240 days in the previous year or next financial years except the industry of apparel, footwear or leather in which employment is minimum period of 150 days in the previous year or next financial years.
  • Total Emoluments of the new employee shall not be more than Rs. 25,000/- per month.
  • The Emoluments should be paid through “Account Payee Cheque” or “Draft” or “Electronic transfer”.
  • The employee’s not participating in contribution of “Recognised Provident Fund” and whose 100% contribution to the National Pension Scheme is made by the government are not qualified for deduction u/s 80JJAA.
  • Casual workman & workman employed through Contract labour are not included in employee category.
 
“Emoluments means”- Any sum paid or payable to an employee in lieu of his employment by whatever name called, but does not include-
  • 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.
  • Any lump-sum payment paid or payable to an employee at the time of termination of his service or superannuation or voluntary retirement, such as gratuity, severance pay, leave encashment, voluntary retrenchment benefits, commutation of pension and the like.
 
For Example 1-
In case of New Business started-
Mr. X starts manufacturing in 1st May 2017. It has 120 employees @ 22,000/- per month. The salary paid to all employees through “Account payee Cheque”. Assume they fulfill all the conditions specified for deduction under section 80JJAA. What will be the deduction amount under section 80JJAA for the financial year 2017-18?
  Answer-
30% of new employees emoluments (i.e. 120 employees x 22,000 per employee x 11 months)
30% of 2,90,40,000 = 87,12,000
Deduction amount under section 80JJAA = Rs. 87,12,000  

For Example 2-
In case of an Existing Business-
Mr. Y had started manufacturing in May 2016. It has added 50 employee’s during the year 2017-18 earlier in the financial year 2016-17 there was 100 employees. Now he is paying to employees @ 23,000/- per month. The salary paid to all employees through “Account payee Cheque”. Assume they fulfill all the conditions specified for deduction under section 80JJAA. What will be the deduction amount under section 80JJAA for the financial year 2017-18?
  Answer-
Deduction under section 80JJAA for the year 2017-18-
30% of additional employee’s emoluments (i.e. 50 employees* x 23,000 per employee x 12 months)
30% of 1,38,00,000 = 41,40,000

Deduction amount under section 80JJAA = Rs. 41,40,000

See the related post: Deductions under Chapter VIA



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