Income Tax Deduction Guide to U/S 80JJAA for New Employees’ Job

Tax Deduction Towards the Employment of the New Employees u/S 80JJAA

In which the total income of the taxpayer towards whom section 44AB applies, poses any profits and gains made through business, under the compliance mentioned in sub-section (2), be permitted a deduction of an amount identical to 30% of additional employee cost made for the business in the former year, towards three assessment years along with the assessment year related to the former year in which this employment is given.

No Deduction Under Sub-Section (1) Shall be Allowed

• If the business is made through splitting up, or the reconstruction of the existing business:
• Mentioned that nothing is included in the same clause will apply towards the business which is made as a result of reestablishments, reconstruction or revival via taxpayer of the business in the events and within the duration mentioned in section 33B;
• If the taxpayer acquired the business through the way of transfer from any other individual or as a result of any business reorganization.
  Unless the taxpayer files the report of the accountant, as specified in the Explanation below sub-section (2) of section 288, prior to the given date referred to in income tax section 44AB providing these particulars in the report as might be mentioned.

Explanation: Towards the Purpose of the Same Section:

• (I) “additional employee cost” rendered the total emoluments paid or subjected to be paid to the other employees employed in the former year:
  • Given that in the case of the existing business, the additional employee cost will be nil when:
  • There would be no increase in the number of employees through the total number of employees employed on the last day of the former year.
    Emoluments are furnished otherwise than through the account payee cheque or account payee bank draft or through the use of an electronic clearing system via a bank account [or via electronic mode as may be specified:

Given that in the first year of the new business, emolument paid or subjected to be paid to the employees employed in that former year would be deemed to be the additional employee cost.

• (ii) Additional employee directed to the employee who would be employed in the former year and whose employment would influence the total number of employees employed through the employer as on the former day of the earlier year, while it does not consist:
  • An employee whose total emoluments exceed Rs 25,000 per month.
  • An employee for whom the whole contribution is furnished by the Government beneath the employee’s pension scheme reported as per the provisions of the employee’s provident funds and Miscellaneous Provisions Act, 1952 (19 of 1952); Or
  • An employee employed for the duration of less than 2,000 and 40 days in the former year. Or
  • An employee who would not take part in the acknowledged provident fund:

Mentioned that towards the taxpayer’s case who is involved in the business of manufacturing the apparel or footwear or leather products, the provisions of the sub-clause (c) will have effect as if for the words “two hundred and forty days” the words “one hundred and fifty days” had been replaced.

Given that where an employee is employed in the former year for the duration of fewer than 240 days or 150 days, as per the case, however, is for the duration of 240 days or 40 days or 150 days under the case, in the next year, he will be deemed to employed in the next year and the provisions of the section will apply as per that.

• (iii) emoluments directed towards any sum paid or subjected to be paid to an employee instead of his employment by whatever name it is said, however, does not consist of:
  • Any contribution paid or subjected to be paid by the employer to any pension fund or the provident funds or any additional fund for the advantage of the employee beneath any law for the mentioned time.
  • Any lump-sum payment paid or subjected to be paid to an employee during the time of termination of his service or superannuation or voluntary retirement like gratuity, severance pay, leave encashment, voluntary retrenchment benefits, commutation of pension.

The provisions of the same section, since they stood immediately before their revamp by the Finance act 2016, would apply to the taxpayer qualified to avail of the tax deduction for any assessment year starting on or prior to the first day of April 2016.

Quantum & Duration of Deduction

Where the total income of the taxpayer to whom section 44AB is applicable, consists of any profits and gains made through the business, a deduction identical to 30% of additional employee cost would be made for these businesses in the former year, and will be permitted for the three assessment years along with the assessment year related to the former year where this employment is furnished. 

Criteria to Qualify

The deduction will only be made if it satisfied the mentioned below conditions:

• The business must not be made through splitting up, or the reconstruction of the existing business. 
• The taxpayer would not take on the business through the method of transfer via any other individual or as a result of any business reorganization.
• An accountant’s report which mentioned the particulars needs to get filed including ROI. 

Description of the Particular Terms Used

Additional employee cost: The total emolument furnished or subjected to pay to the additional employees employed in the former year. 

Additional Worker

An employee who would be employed in the former year and whose employment would have the effect of raising the total number of employees employed through the employer as on the former day of the previous year. 

Definition Exclusions 

1. An employee whose total emolument exceeds Rs 25,000 per month.
2. An employee for whom the whole contribution is furnished through the Government beneath the employee’s pension policy is mentioned as per the provision of the employee’s provident funds and Miscellaneous Provisions Act, 1952.
3. An employee employed towards the duration of fewer than 240 days in the former year. For the taxpayer who is involved in the business of making apparel or footwear or leather products, an employee employed for the duration of fewer than 150 days in the former year. 
4. An employee who would not take part in the acknowledged provident fund. 

Note: when the employee would get employed in the former year for less than 240 days or 150 days as per the case but is employed towards the duration of 240 days or 150 days under the case might be, in the next year, he would be deemed to be employed in the next year. As per that the employer will be qualified for the deduction of 30% of the additional employee cost of these employees in the next year. 

Employment of Employee Emoluments

Any sum paid or subjected to get paid to the employe in place of his employment through any name known. 

Exclusions via Definition

1. Any contribution paid or subjected to paid through the employer to any pension fund or provident fund or any additional fund for the advantage of the employee beneath any law under the mentioned time 
2. Any lump-sum payment paid or subjected to get paid to an employee during the termination of his service or superannuation or voluntary retirement like gratuity, severance pay, leave encashment, voluntary retrenchment benefits, commutation of pension

Ques: Mr. Rhas started the business of manufacturing the electric lamps dated 1.4.2021. He employed 350 new employees in the PY 2021-22, the information of whom is as follows:

Solution: The regular employees take part in the considered provident fund but the casual employees do not appear in the same. Calculate the deduction, if any available to Mr. Rhas for AY 2022-23, if the profits and gains made via the manufacture of computers that year would be Rs 75 lakhs and the sum of the turnover will be Rs 2.16 cr. 

Ques: What shall happen if Mr. R started the business of manufacturing the footwear dated 1.4.2021?

Solution: Mr. R would get qualified for the deduction beneath section 80JJAA since he is subjected to the tax audit beneath section 44AB for AY 2022-23, due to his total turnover from business exceeding Rs 1 crore and he has employed “additional employees” in the P.Y.2021-22.

If Mr. R is engaged in the business of manufacture of electric lamps 

Additional employee cost = ₹24,000 x 12 x 75 [See Working Note below] = ₹ 2,16,00,000 

Deduction beneath section 80JJAA = 30% of ₹ 2,16,00,000 = ₹ 64,80,000.

Working Note: Number of additional employees 

Note:

Since casual employees would not participate in the considered provident fund, they would not be entitled to additional employees. Moreover, 125 regular employees were employed on the date 1.5.2021 and would not entitle to other employees because their monthly emoluments are more than Rs 25,000. Indeed 100 regular employees employed on the date 1.9.2021 would not be entitled as additional employees for the PY 2022-23, since they are employed for less than 240 days in that specific year. 

Hence, 75 employees who were employed on the date 1.4.2021 gets entitled as additional employees and the total emoluments paid or subjected to get paid to them in the PY 2021-22 would deem to be the additional employee cost. 

As regards 100 regular employees employed on the date 1.9.2021, they shall be treated as additional employees for the former year 2021-22, when they choose to carry on their employment in the same year for the minimum duration of 240 days. As per that 30% of the additional employee cost towards these employees will be permitted as a deduction beneath section 80JJAA in the hands of Mr R for the AY 2022-23. 

If Mr R is involved in the footwear manufacturing business

If Mr R would get engaged in the business of manufacturing the footwear, he will be qualified for the deduction beneath section 80JJAA towards the employee cost of the regular employees employed on the date 1.9.2021, since they would be employed for exceeding 150 days in the former year 2021-22. 

Additional employee cost = ₹ 2,16,00,000 + ₹ 24,000 x 7 x 100 = ₹3,84,00,000 Deduction under section 80JJAA = 30% of ₹ 3,84,00,000 = ₹ 1,15,20,000