Section 80JJAA of the Income Tax Act

Section 80JJAA is a provision under the Income Tax Act. The section aims to promote employment generation and industrial growth by providing a significant tax benefit for eligible businesses, encouraging the expansion of the workforce.

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What is Section 80JJAA of the Income Tax Act?

Section 80JJAA of the Income Tax Act is a provision that is designed to offer employers a deduction on their taxable income to encourage businesses to create new formal sector jobs. It applies to Income From Business for an assessee who hires additional employees during a fiscal year. Under this section, employers can claim a deduction of up to 190% of the additional employee costs incurred while employing new eligible workers.

The purpose of Section 80JJAA is to encourage employers to create new job opportunities in the formal sector, contributing to reduced unemployment rates. This tax deduction encourages businesses to hire more people, fostering economic growth and employment.

What is the Applicability of Section 80JJAA Under the Income Tax Act?

Section 80JJAA allows a deduction of 30%. The deduction is allowed for three consecutive assessment years, including the assessment year relevant to the previous year in which the additional employment is provided.

The following are conditions that you will have to fulfil to apply for tax deduction under Section 80JJAA:

  1. Ownership Requirement:

    Business must be solely owned, not acquired or split from another.

  2. Formation Conditions:

    Prohibits forming a business through the split or reconstruction, except for re-established businesses.

  3. Compliance and Deduction:

    File ITR on time and submit a CA report (Form 10DA) to claim deductions under Section 80JJAA.

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What is the Eligibility Under Section 80JJAA?

30% of the additional employee cost incurred in the previous year for hiring new eligible employees by a business.
Below is the eligibility for both employer and employee: 

  1. Employee Eligibility:

    • Monthly salary not exceeding Rs. 25,000.

    • Employment for more than 240 days in the previous year.

    • Participation in a recognized Provident Fund.

  2. Employer/Business Conditions:

    • Business operational for at least 240 days in the previous year.

    • Employed at least 10 employees in the previous year.

    • No previous claim of deduction under Section 80JJAA.

What are the Calculations Under Section 80JJAA?

Let's understand this with the help of an illustration:

Tishya Ltd, an industrial company, started operations in the fiscal year 2021-22. During FY 2021-22, the company had a total employee cost of ₹70 lakh and employed 40 individuals. Moving to the financial year 2022-23, the business saw an increase in the total employee cost to ₹95 lakh, with a workforce of 50 employees.

Additional Employee Costs of Tishya Ltd. will be:

Additional Employee Cost = Total Employee Cost in Financial Year 2022-23 – Total Employee Cost in Financial Year 2021-22

=₹95 Lakhs-₹70 Lakhs

=₹25 Lakhs

Deductions available for Tishya Ltd. under Section 80JJA for the financial year 2022-23 will be calculated as follows:

Deduction under Section 80JJA = 30% of the additional employee cost

=30% of ₹25 lakh

=₹7.5 lakh

Tishya Ltd. can claim a deduction of Rs. 7.5 lakh under Section 80JJA

80JJAA Deduction for AY 2023-24

Section 80JJAA of the Income Tax Act allows eligible businesses to claim a 30% deduction on additional employee recruitment costs for three consecutive assessment years. Businesses can claim a 90% tax benefit under Section 80JJAA for the assessment year relevant to the previous year of providing employment.

Conditions for availing deduction:

  • The business should not result from the transfer of ownership or reconstruction of an existing business.

  • The business should be registered under the Employees' Provident Funds and Miscellaneous Provisions Act 1952.

  • The business must be engaged in manufacturing goods or producing specified articles.

  • Additional employees must have been hired in the previous financial year.

  • The monthly income of the additional employee should not exceed Rs 25,000.

  • The appointed employee must have worked for a minimum of 240 days in the previous year.

**NOTE: Section 80JJAA deductions are not applicable to service sector businesses. However, production-based businesses meeting the specified criteria can apply for these deductions.

Conclusion

By encouraging job creation and supporting compliant businesses, Section 80JJAA plays a pivotal role in fostering economic growth and employment generation in the country. Compliance with above mentioned conditions ensures eligibility for the tax deduction, encouraging employment generation and supporting the growth of eligible businesses.

FAQ's

  • Who can claim the deduction?

    Indian companies engaged in any business covered under section 44AB who hire new regular employees on a full-time basis.
  • What costs are deductible?

    30% of the additional employee cost incurred, including salary, allowances, PF contributions, etc. (excluding perquisites).
  • How long can I claim the deduction?

    For three consecutive assessment years, starting from the year you hire the new employee.
  • Are there any conditions?

    Yes, the company cannot be formed by splitting/reconstruction/amalgamation with another, and you need to submit an accountant's report with your tax return.

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^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
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