Section 80 JJAA

What is Section 80 JJAA of the Income Tax?

Section 80JJAA of the Income Tax Act is a provision that encourages businesses to create new jobs in the formal sector. It allows employers to claim a deduction of 30% of the additional employee cost incurred for hiring new eligible employees. This deduction can be claimed for three consecutive assessment years, starting from the year in which the new employees are hired. To be eligible for the deduction, the new employees must be employed for at least 240 days during the year (150 days for the apparel, leather, and footwear manufacturing sector). Additionally, the business must be registered under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952.

What is the Eligibility for Deductions Under Section 80JJAA?

The Section 80JJAA of the Income Tax Act allows businesses to claim a deduction of 30% on the additional employee costs incurred. This deduction can be claimed for three consecutive assessment years, starting from the year in which the additional employees are hired.

To qualify for the deduction, the following conditions must be met:

• Additional Employee Cost: The additional employee cost is calculated as the difference between the total employee cost in the current fiscal year and the previous fiscal year.

• Employee Eligibility:

  • The employee's monthly salary should not exceed Rs. 25,000.

  • The employee must have been employed for more than 240 days in the previous year.

  • The employee should be a participant in a recognized Provident Fund scheme.

  • The government should not have contributed the entire EPF contribution for the employee.

• Business Eligibility:

  • The business should have been operational for at least 240 days in the previous year.

  • The business should have employed at least 10 employees in the previous year.

  • The business should not have claimed any deduction under Section 80JJAA in the previous year.

Calculation of Deduction Under Section 80JJAA

Suppose a company had a total employee cost of Rs. 50 lakh in the previous year. In the current year, the total employee cost increased to Rs. 70 lakh due to the hiring of new employees.

• Additional Employee Cost: Rs. 70 lakh - Rs. 50 lakh = Rs. 20 lakh

• Deduction Under Section 80JJAA: Rs. 20 lakh * 30% = Rs. 6 lakh

Who is Not Eligible Under Section 80JJAA?

The following businesses are not eligible to claim a deduction under Section 80JJAA:

• Split-Up or Reconstruction of an Existing Business: Businesses formed by splitting up or reconstructing an existing business are generally not eligible. However, there's an exception for businesses re-established, reconstructed, or revived by the same assessee.

• Acquired Business: Businesses acquired through business reorganization are also ineligible for the deduction.

• Failure to Submit CA Report: Businesses that fail to submit a Chartered Accountant's report before the specified deadline cannot claim the deduction.

What is the Applicability of Section 80JJAA?

1. Business Origin:

   • The business should be solely owned and not acquired through business reorganization.

   • It should not be formed by splitting or reconstructing an existing business. However, re-establishment, reconstruction, or revival of an existing business by the same assessee is eligible.

2. Tax Compliance:

   • File your Income Tax Return (ITR) within the due date.

   • Submit a Chartered Accountant's report in Form 10DA before the specified deadline (usually September 30th).

3. Income from Business:

   • The business must generate income and be subject to tax audit under Section 44AB.

What is Form 10DA?

Form 10DA is an important document required to claim deductions under Section 80JJAA of the Income Tax Act. It is a report prepared by a Chartered Accountant (CA) that certifies the additional employee cost incurred by a business. This report is essential for the tax authorities to verify the eligibility of the business for the deduction. By submitting Form 10DA along with the Income Tax Return, businesses can avail the benefits of Section 80JJAA, which incentivizes job creation and economic growth.

What are Additional Employees as per Section 80JJAA?

Under Section 80JJAA of the Income Tax Act, an "additional employee" is a new employee hired by a business during a specific financial year who meets the following criteria:

• Salary Limit: The employee's monthly salary should not exceed Rs. 25,000.

• Employment Duration: The employee must be employed for a minimum of 240 days in the previous year (150 days for the apparel, leather, and footwear manufacturing sector).

• Provident Fund Membership: The employee should be a member of a recognized Provident Fund.

• Government Contribution: The government should not have contributed the entire EPF contribution for the employee.

What is the Additional Cost as per Section 80JJAA?

As per Section 80JJAA, the "Additional Employee Cost" refers to the total emoluments paid or payable to new employees hired by a business.

• Net Increase in Employees: For an existing business to claim this deduction, there must be a net increase in the total number of employees compared to the previous year. This means the number of new employees hired should exceed the number of employees who left the business.

• No Deduction for No Net Increase: If the total number of employees remains the same or decreases, no additional employee cost can be claimed, and therefore, no deduction under Section 80JJAA is available.

What is Emoluments as per Section 80JJAA?

As per Section 80JJAA of the Income Tax Act, "emoluments" refers to any sum paid or payable to an employee in lieu of their employment, regardless of the name given to the payment. This includes:

• Basic salary

• Dearness allowance

• House rent allowance

• Other allowances

• Bonus

• Commission

However, the following are not considered emoluments for the purpose of this section: Employer's contribution to pension funds, provident funds, or other employee benefit funds

How to Calculate Your Income Tax?

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Conclusion

Section 80JJAA incentivises job creation by offering tax deductions to businesses hiring additional employees. By meeting eligibility criteria and ensuring compliance, production-based enterprises can reduce taxes while contributing to economic growth and employment generation.