Any service or business sector or manufacturing industry can claim additional deduction of 30% of salary paid to their additional employees, subject to fulfilment of few conditions. This deduction of 30% of the additional employee cost can be claimed for 3 years including the year in which such employment is provided.
Aggregate amount of the additional tax incentive in 3 years would be 90% of salary paid to additional employees. It can be enumerated that for each INR 100 paid of the salary, any business would be eligible to claim deduction of INR 190. This tax incentive is allowable under section of the Income Tax Act, 1961- section 80JJAA in order to promote employment generation.
1. Who can claim this tax incentive u/s 80JJAA?
Any business or industry or service sector (Company / Partnership / Sole proprietorship/ LLP etc.) can claim this benefit if their books of accounts are audited under section 44AB of Income tax Act. It is essential to note that a professional cannot claim deduction under section 80JJAA of the Act.
2. Amount of Deduction under Section 80JJAA?
30% deduction of salary paid to additional employees, is deductible for current year & subsequent 2 years which are for 3 years including the year in which employment is provided. However, contribution of employer to Provident Fund / Pension fund would not be included in salary.
3. What are the conditions for availing tax incentive under Section 80JJAA?
Employment of any employee should result in enhance in overall no. of employees in the organization. (i.e. such employee should not be hired as a replacement on termination of services of another employee)
Only those employees will be eligible whose salary is maximum upto INR 25,000 per month.
Employee should participate in recognized Provident fund.
Employee should be employed for a minimum no. of 240 days during a financial year. If an employee is not employed for 240 days in current year, but completes employment of 240 days in next year, he/she will be deemed to be employed in next year & deduction in respect of such employee can be claimed in the next year. (This condition of 240 days is 150 days in case if your business is of manufacturing apparel or leather products or footwear)
Payment of salary should be done by banking channel (including online transfers & UPI payments). Salary Payment should not be in cash or bearer cheque.
4. What are the procedural requirements or compliance which are to be done to avail tax incentive u/s 80JJAA?
Report from a CA certifying the amount of eligible deduction to the business in Form No. 10DA is essential to be electronically submitted on or before the due date of furnishing Tax Audit Report (i.e. on or before 30th September) and the ITR should be filed within the due date (i.e. 31st October). This new tax incentive is available Financial Year 2016-17 (AY 2017-18), New Form No. 10DA has been notified vide Notification No. 104/2019 dated 18/12/2019.
5. A Company which has opted for taxation under section 115BAA at the rate of 22% or where a new manufacturing company has opted for taxation under section 115BAB @ 15%. Whether such a Company can still claim deduction under section 80JJAA for additional employee cost of additional employees?
Yes. For promoting employment generation, a Company which has already opted for taxation u/s 115BAA or section 115BAB can claim this tax incentive u/s 80JJAA.
6. An individual has opted for taxation according to the Section 115BAC of the Act. Can he / she still claim deduction u/s. 80JJAA of the Act?
Yes. An Individual who has opted for alternative taxation under section 115BAC of the Act can also claim deduction under section 80JJAA.
This is huge economic benefit to all business, industries & service sectors whereby they can avail the tax benefit on Rs. 190/- by spending Rs. 100 only. By claiming deduction under section 80JJAA, businesses can lower their income tax liability.