[Section 80JJAA]: Deduction in respect of Employment of New Employees

The Provisions of Section 80JJAA towards Deduction in respect of Employment of New Employees are given here and one has to satisfy the following conditions :

(1)      30% of additional Employee Cost to be Allowed as Deduction for 3 Assessment Years [Section 80JJAA(1)]:

Where the gross total income of an assessee to whom section 44AB applies, includes any profits and gains derived from business, there shall, subject to the conditions specified in section 80JJAA(2), be allowed a deduction of an amount equal to 30% of additional employee cost incurred in the course of such business in the previous year, for 3 assessment years including the assessment year relevant to the previous year in which such employment is provided.

(2)      Essential Conditions [Section 80JJAA(2)]:

No deduction under section 80JJAA(1) shall be allowed,—

(a)  if the business is formed by splitting up, or the reconstruction, of an existing business:

However, nothing contained in this clause shall apply in respect of a business which is formed as a result of re-establishment, reconstruction or revival by the assessee of the business in the circumstances and within the period specified in section 33B;

(b)  if the business is acquired by the assessee by way of transfer from any other person or as a result of any business reorganisation;

(c)  unless the assessee furnishes at least 1 month before the due date of furnishing the return of income the report of a chartered accountant giving such particulars in the report as may be prescribed.

Explanation.—For the purposes of this Section 80-JJAA

(i)   Additional Employee Cost:

“Additional employee cost” means total emoluments paid or payable to additional employees employed during the previous year:

Provided that in the case of an existing business, the additional employee cost shall be nil, if

(a)  there is no increase in the number of employees from the total number of employees employed as on the last day of the preceding year;

(b)  emoluments are paid otherwise than by an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account or such other electronic mode as may be prescribed:

Provided further that in the first year of a new business, emoluments paid or payable to employees employed during that previous year shall be deemed to be the additional employee cost;

Provided further that where an employee is employed during the previous year for a period of less than 240 days or 150 days, as the case may be, hut is employed for a period of 240 days or 150 days, as the case may be, in the immediately succeeding year, he shall be deemed to have been employed in the succeeding year and the provisions of this section shall apply accordingly.

The above proviso has rationalized the deduction of 30% by allowing the benefit for a new employee who is employed for less than the minimum period of 240 days or 150 days, as the case may be, during the first year but continues to remain employed for the minimum period of 240 days or 150 days, as the case may be, in the subsequent year.

(ii) Additional employee:

“Additional employee” means an employee who has been employed during the previous year and whose employment has the effect of increasing the total number of employees employed by the employer as on the last day of the preceding year, but does not include,—

(a)  an employee whose total emoluments are more than 25,000 p.m.; or

(b)  an employee for whom the entire contribution is paid by the Government under the Employees’ Pension Scheme notified in accordance with the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952; or

(c)  an employee employed for a period of less than 240 days during the previous year:

Provided that in the case of an assessee who is engaged in the business of manufacturing of apparel or footwear or leather products, the provisions of sub-clause (c) above shall have effect as if for the words “240 days”, the words “150 days” had been substituted; or

(d)  an employee who does not participate in the recognised provident fund;

(iii) Emoluments:

“Emoluments” means any sum paid or payable to an employee in lieu of his employment by whatever name called, but does not include—

(a)  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

(b)  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.