Section 80JJAA Of The Income Tax Act: Meaning, Eligibility And More

Income Tax

The government introduced Section 80JJAA of the Income Tax Act to provide relief to entities for the expenses incurred due to recruiting additional employees. Under this Section, employers of new and old companies can claim a deduction for the extra employee cost. Keep reading to know more about this Section, eligibility criteria and how to claim a deduction. 

What Is Section 80JJAA of the Income Tax Act?

Since it was introduced, the deduction has gone through various changes. The last amendment was made, and the Section was applicable w.e.f April 4 2017. Under it, employers of new or existing entities can claim 30% of their expenses incurred for recruiting an additional employee as tax deduction. 

The objective of Section 80JJAA is to encourage entities to make recruits and add fresh employees at regular intervals. Thus, it creates employment in every sector. 

What Are the Eligibility Criteria for Claiming Tax Deduction Under Section 80JJAA?

The eligibility criteria to claim deduction under Section 80JJAA are as follows:

• Only those taxpayers having a single source of income, i.e., business profit can claim deduction under Section 80JJAA of the Income Tax Act 1961. 
• Employers can also get tax deduction if Section 44AB requires them to audit their books of accounts. 

Also Read: Section 80CCC Of The Income Tax Act

Exceptions

There are these exceptions too that individuals need to know of:

• There is no deduction if businesses are formed due to splitting up or reconstructing an existing one. However, if a business is revived, reconstructed, or re-established under reasons mentioned under Section 33B, deduction will be applicable. Such reasons include explosions, earthquakes, floods, enemy attack, etc. 
• If a business has been acquired as a result of a transfer from another person, deduction cannot be claimed under Section 80JJAA of the Income Tax Act. 
• Taxpayers are also required to file income tax using Form 10DA to claim deduction.

Who Are Additional Employees?

For claiming deduction under Section 80JJAA, entities must identify their additional employees. They are individuals whose recruitment during the previous year has increased the total number of employees on the last date of that year. However, there are exclusions like the following:

• An employee who has a total salary of more than Rs. 25,000 per month
• If employees do not participate in a recognized provident fund, no deduction is available
• No deduction can be claimed if the government makes the total contribution under the Employees’ Pension Scheme on behalf of an employee. 
• No deduction will be applicable if an employee has not completed a service period of 240 days in the previous year. However, for apparel manufacturers, the period is 150 days. 

What Does Additional Employee Cost Mean?

Additional employee cost involves their total emolument, which is either paid or payable during the previous year by the company’s employer. However, the 80JJAA deduction will be considered nil in these cases:

• The deduction is nil if the employer pays the emolument through an electronic clearing system, account payee bank draft, or account payee cheque. 
• There is no increase in the number of employees working on the last day of the previous year. 

Also Read: Deductions Under Section 80C Of The Income Tax Act

What Does Emolument Mean?

Emoluments refer to the sum paid by an employer to their employee in lieu of their service. However, there are certain exceptions in consideration. 

Exceptions

• It does not count if an employer pays a lump sum amount to an employee at the time of their termination, voluntary retirement or superannuation. This includes leave encashment, gratuity, commutation of pension, voluntary retrenchment benefits, severance fee, etc. 
• It excludes any amount that an employer will pay or has already paid for providing pension fund, provident fund or any other fund to benefit their employment as required by law in force. 

Points to Keep in Mind while Claiming Deduction under Section 80JJAA

One must keep in mind these points to claim tax deduction u/s 80JJAA of the Income Tax Act:

• If there is no increment in the number of people working, then bonuses or increments that the employer gives them will not be eligible for deduction.
• If an employer has made changes to the salary in the year, then the Section will consider an employee’s average salary. 
• Professionals are not eligible to claim Section 80JJAA deduction. 
• The deduction calculation will take place every year. However, one can claim these deductions in three years. 

How to File Form 10DA Online?

To claim deduction under Section 80JJAA, one needs to fill up form 10DA. However, remember it must have a signature of a Chartered Accountant in practice. Also, one must submit it electronically to the Income Tax Department. 

The process of filing the form is given below:

Step 1: First, log in to the Income Tax Department e-filing portal.

Step 2: On the upper left side of their website, locate an e-file menu and click on Income Tax Forms under the drop-down list. 

Step 3: Proceed with ‘Prepare and Submit Online Form (other than ITR).’

Step 4: Next, select the Assessment year and click on Form 10DA.

Step 5:  Finally, after filling up the form tap on the ‘Continue’ option. 

Final Word

If you think you satisfy the above criteria and do not fall under any exceptions, then avail for the deduction under Section 80JJAA of the Income Tax Act. Also, make sure you do not forget to file Form 10DA to claim deductions successfully. 

Frequently Asked Questions

1. Is deduction under Section 80JJAA available in addition to deduction under Section 37(1)?

Yes, Section 80JJAA deduction is available in addition to Section 37(1) deduction. So the total percentage of deduction available for expenses incurred due to additional employees is 130%. This means deduction of expenditure (excluding costs covered under Section 30 and Section 36) for carrying on business or profession will be allowed. 

2. For how many years can we claim deduction under Section 80JJAA?

Deduction under Section 80JJAA of the Income Tax Act amounting to 30% of the additional employee cost is available for three assessment years. It is only available if employers have recruited them in the previous year. However, their claim will be available as first, second, and third instalments. 

3. Is there any maximum or threshold limit up to which individuals can claim deduction under section 80-JJAA?

There is no maximum limit up to which deduction amount can be claimed. However, the department has fixed its percentage at 30% of the employee cost. To claim this amount, you will have to download and fill out Form 10DA, then submit it to the Income Tax Department. 

4. How to calculate additional employee cost and deduction u/s 80JJAA?

The additional employee cost is the total emolument paid or payable by an employer in the previous year. After multiplying the emoluments of the additional employees with the total number of additional employees, we can compute the deduction amount under Section 80JJAA. 

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