Section 80JJAA of the Income Tax Act: Deductions, Applicability, Calculations, and Examples

India’s Income Tax Act provides various tax deductions to cut down the taxable income for individuals and businesses. Section 80JJA of the Income Tax Act, often called the 80JJAA deduction, is one such deduction. Keep reading to learn more about the 80JJAA deduction, including who can use it and how to figure it out.

What’s Section 80JJAA of the Income Tax Act?

Section 80JJAA is a part of the Indian Income Tax Act of 1961. It gives tax breaks to employers who create jobs in the formal sector. Employers can claim this deduction against Income From Business when they hire new staff during a fiscal year. The law lets employers claim up to 190% of the extra costs they face when hiring new eligible workers.

Section 80JJAA aims to push employers to create new job openings in the formal sector and give job benefits to eligible workers. By offering a tax break, the government wants to motivate employers to hire more people. This, in turn, should help lower the jobless rate in the country.

What’s the definition of extra workers according to section 80JJAA?

It refers to a worker hired in the previous year, but doesn’t include:

• Workers who earn over Rs. 25,000/- .
• Workers employed for fewer than 240 days in the previous year (150 days for those making clothes, shoes, or leather goods)
• Workers who don’t join the Recognised Provident Fund such as temporary staff
• Workers whose entire contribution the Government pays under the Employees’ Pension scheme

What is the Additional Employee Cost as per Section 80JJAA?

Additional Employee Cost refers to the total emoluments paid or payable to additional employees.

However, for an existing business, the additional employee cost will be NIL if there is no net increase in the total number of employees. This means that the number of new employees hired must exceed the number of employees who left during the previous year.

Understanding Emoluments in Section 80JJAA

Emoluments are defined as any amount paid or payable to an employee for their employment, regardless of the terminology used. However, this does not include the employer’s contributions to pension or provident funds, or any payments made at the time of service termination or voluntary retirement, such as gratuity, severance pay, voluntary retrenchment benefits, leave encashment, or pension commutation.

Applicability of Section 80JJAA of the Income Tax Act

Section 80JJAA of the Income Tax Act provides tax deductions on profits and gains from businesses, allowing a deduction of 30% on additional employee costs for three consecutive assessment years.

To avail of this tax deduction under Section 80JJAA, ensure you meet the following criteria:

1. Filing Requirements:
   • File your Income Tax Return (ITR) within the stipulated due date.
   • Submit a Chartered Accountant’s report in Form 10DA.
2. Ownership of Business:
   • The business should be owned solely by you and not acquired from another individual.
   • It should not result from a business reorganization.
3. Formation of Business:
   • Do not form the business by splitting up or reconstructing an existing business.
   • You may claim this deduction if you have re-established, revived, or reconstructed the business.
4. Payment of Emoluments:
   • Pay emoluments to employees through an account payee cheque or electronic bank transfer.
5. Income and Filing Deadline:
   • Ensure you have income from the business and file the return before the tax audit due date (September 30th, unless extended), along with Form 10DA certified by a Chartered Accountant.

Form 10DA

Form 10DA is a mandatory form to be filed while claiming a deduction under section 80-JJAA. Given below are some important points related to Form 10DA:

Particulars	Filing Date
Due Date of Filing	Form 10DA is to be filed one month before the due date of filing.
Mode of submission	It needs to be submitted online on the Income Tax website.
Is DSC Mandatory?	Yes, DSC is Mandatory For Form 10DA

Deductions under Section 80JJAA

Section 80JJAA permits businesses to claim a 30% deduction on additional employee costs incurred. The additional employee cost is calculated as the difference between the total employee cost in the current fiscal year and the previous fiscal year.

Determining Additional Employee Costs

The following criteria are used to determine additional employee costs:

1. The employee should earn a salary of no more than ₹25,000 per month.
2. The employee should have been employed for more than 240 days in the previous year.
3. The employee should participate in a recognized Provident Fund.
4. The Government should not have paid the entire contribution of the EPF scheme for the employee.

Conditions for Availing Deduction

To qualify for the deduction under Section 80JJAA, your business must satisfy the following conditions:

1. The business should have been operational for at least 240 days in the previous year.
2. The business should have employed at least 10 employees in the previous year.
3. The business should not have claimed any deduction under Section 80JJAA in the previous year.

Example Calculation under Section 80JJAA

Assume ABC Ltd, a manufacturing company, began operations in FY 2022-23. In FY 2022-23, the total employee cost was ₹50 lakh, and the business employed 200 employees. In FY 2023-24, the company hired an additional 100 employees and paid them ₹25 lakh.

Calculation of Additional Employee Cost for FY 2023-24:

• Additional employee cost = ₹25 lakh

Deductions Available to ABC Ltd under Section 80JJAA:

• Deduction = 30% of additional employee cost
• Deduction = 30% of ₹25 lakh
• Deduction = ₹7.5 lakh

Therefore, ABC Ltd can claim a deduction of ₹7.5 lakh under Section 80JJAA for the financial year 2023-24.

Tax Benefits under Section 80JJAA for AY 2024-25

Section 80JJAA of the Income Tax Act provides eligible businesses with deductions on additional employee costs for Assessment Year (AY) 2024-25. This section permits a 30% deduction on recruitment costs for three consecutive assessment years, starting from the year additional employment is created.

Businesses can obtain a total tax benefit of 90% by including the assessment year relevant to the previous year in which additional employment was provided.

Eligibility Criteria for Section 80JJAA Deduction for AY 2024-25:

1. The business must be involved in manufacturing goods or producing specified articles.
2. Additional employees must have been hired in the previous financial year.
3. The additional employee’s monthly salary should not exceed ₹25,000.
4. The employee must have been employed for at least 240 days in the previous year.
5. The business must be registered under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.
6. The business should not be formed through the transfer of ownership or reconstruction of an existing business.

Exclusions from Claiming the Deduction:

The following businesses are excluded from claiming the deduction under this section:

(a) Businesses formed by splitting up or reconstructing an existing business:

• This exclusion does not apply to businesses formed through re-establishment, reconstruction, or revival by the assessee.

(b) Businesses acquired by the assessee due to any business reorganisation.

(c) Businesses that fail to submit the accountant’s report before the specified date.

Final Note

The deduction under Section 80JJAA is unavailable for businesses in the service sector. If you operate a production-based business meeting the specified criteria, you can apply for the 80JJAA deductions. Carefully review the eligibility requirements to ensure compliance and avoid errors in the deduction claims.

Frequently Asked Questions

Is the deduction under section 80JJAA additional to the deduction under section 37(1)?

Yes, the deduction under section 80JJAA is in addition to the deduction under section 37(1). Thus, the total deduction for additional employee salary expenses is 130%.

How many years can the deduction under this section be claimed?

The deduction under this section is available for three consecutive years.

Is section 80JJAA applicable to specific areas or states?

No, the deduction under section 80JJAA is not limited to specific areas or states. It is available to all eligible assessees, provided all conditions specified in this section are met.

Is there a cap on the deduction under section 80JJAA?

The deduction under section 80JJAA is 30% of the additional employee costs. There is no specified cap or maximum limit for this deduction.

If ABC hires 10 additional employees, but 3 do not participate in the Recognised Provident Fund, can ABC claim the deduction for all, none, or just 7 employees?

ABC can claim the deduction for 7 employees since the 3 employees who do not participate in the Recognised Provident Fund are ineligible.

Is the deduction under Section 80JJAA available under both old and new tax regimes?

Yes, the deduction under Section 80JJAA is available regardless of the tax regime under which the assessee pays tax.

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