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Section 80JJAA Deduction | Company Vakil

Section 80JJAA Deduction

Section 80JJAA of the Income Tax Act is aimed at generating employment in all sectors and deductions under this section have been extended to AY 2017-18. All assessees can claim tax deductions for employment generation under this section.

Eligibility for Claiming Deductions under Section 80JJAA

Deductions under Section 80JJAA can be claimed by taxpayers whose total income includes profit or gains from business. To be eligible for deductions under Section 80JJAA, the taxpayer must satisfy all the following conditions:

  1. The business should not have been formed by splitting up or reconstructing an existing business. However, a business formed as a result of re-establishment, reconstruction, or revival, is eligible.
  2. The business should not have been acquired by the taxpayer by way of transfer from any other person or as a result of business reorganization.
  3. The taxpayer must file income tax returns along with a report from a Chartered Accountant using Form 10DA.

Amount of Deduction under Section 80JJAA

Taxpayers can claim a deduction equal to 30% of the additional employee costs for 3 assessment years.

Additional Employee

An additional employee is one who has been employed during the previous year and whose employment has had the effect of increasing the total number of employees employed by the employer as on the end of the year in question. This does not include:

  • An worker whose totals are more than Rs. 25,000 per month.
  • An employee for whom the entire contribution is paid by the Government under the Employee Pension Scheme.
  • An employee who is employed for a period of less than 240 days during the previous year. In the case of apparel manufacturers, the minimum employment period is 150 days.
  • An employee who does is not a part of any government provident fund.

Additional Employee Cost

Additional employee costs are the total emoluments paid or payable to additional employees employed during the previous year. If the business already exists there will be no cost if:

  • The number of employees stays the same as the number of employees that were working at the company or firm the last year.
  • Emoluments are paid by methods other than by an account payee cheque or account payee bank draft or by the use of ECS through a bank account. Note that in the first year of business, emoluments paid or payable to the employees employed during that year are considered the additional employee cost.

Emoluments

Emoluments refers to any sum paid or payable to an employee in lieu of his employment by whatever name called. Emoluments do not include:

  • Any contribution paid or payable by the employer to any pension fund or provident fund or any other fund for the employee’s benefit under any law for duration it is in force.
  • Any lump-sum amount paid or payable to an employee at the time of termination of his/her service or superannuation or voluntary retirement, such as gratuity, severance pay, leave encashment, voluntary retrenchment benefits, commutation, pension and the like.

Form 10DA

Taxpayers claiming income tax deduction under Section 80JJAA must file a report from a Chartered Accountant using Form 10DA. The Form 10DA format is attached below for reference:

 

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