Section 80JJAA of Income Tax Act

Section 80JJA of the Income Tax Act states that businesses can claim a deduction of 30% of the additional employee cost for three years if they hire an additional workforce during a year. The motive of this section is to encourage employers to create employment opportunities in the formal sector of the country. 

Thus, when an employer hires new eligible employees, he is eligible to claim a deduction of the cost during that financial year. An employer/business can claim the deduction from the year in which the employees are hired and can continue to claim the deduction for two consecutive years.

However, there are certain conditions that the hired employees and employers must meet for the business to claim a deduction pertaining to the income from the business. Thus, this section proves beneficial in multiple ways. 

Firstly, it solves the unemployment issue. Secondly, the employer can claim a deduction which pertains to his income from business, and lastly, it leads to economic growth and development in the country.

• Understanding Additional Employees for 80JJAA Deduction 

Though the provisions of section 80JJAA are simple, it is essential to understand the minute details. To get the benefits mentioned in this section, the meaning of additional employees is crucial. 

Additional employees are those employees who have been hired during the previous year and they must fulfill certain eligibility criteria as required by the provisions of section 80JJAA. This deduction is available only if the total number of employees increases in the year. 

The additional cost of employees will be zero or nil in the following cases:

1. The number of employees does not exceed the total number of employees as of the last day of the preceding year.
2. The emoluments are paid to the employees in a form other than cheque or electronic mode or account payee draft bank or other system as prescribed. (For example, cash)

The example below will demonstrate the concept of additional employees.

Since there was no increase in the number of employees during the year, the employer is not eligible to claim the deduction under section 80JJAA. This is because the number of employees who joined was equal to the number of employees who left the organisation.

Here is another example to show the additional employees during the year.

In the above case, there are 15 additional employees in the organisation at the end of the financial year. Hence, the employer can claim a deduction u/s 80JJAA for the additional cost of 15 employees.

Another crucial term to understand in the provisions of 80 JJAA is the term “additional employment cost”, as the deduction is 30% of this cost. For 80JJAA deduction, additional employee cost means the total emoluments paid or payable by an employer to the additional employees hired during that financial year.

Following is the data related to additional employees hired by a company.

•  Understanding Emoluments U/S 80JJAA 

The term emoluments for section 80JJAA means any sum/amount paid/payable to an employee for his services to the organisation. However, it does not include:

• The employer’s contribution to the employee's provident fund, pension fund, etc.
• Payments made to the employee at the time of his retirement or termination.

Thus, gratuity, leave encashment, retrenchment compensation, etc., are not part of the emoluments mentioned above.

To avail of the benefits of this section, employers must fulfil the following applicability conditions.

Note: The deduction u/s 80JJAA is available to all assesses irrespective of the regime under which they pay taxes.

To get a 30% deduction u/s 80JJAA, the employer and employee must meet the following criteria.

•  Employer 

1. The business must operate for a minimum of 240 days in the previous year.
2. At least 10 employees must be employed in the previous year.
3. The employer must not have claimed any deduction u/s 80JJAA in the previous year.

• Employee

1. An employee’s monthly salary must not exceed ₹25,000.
2. An employee/individual must be employed for at least 240 days or more in the year. This limit is 150 days for employees in the apparel, footwear, or leather manufacturing sectors.
3. The employees must be a part of the Recognised Provident Fund. (Part-time, contractual employees not participating in the PF are not eligible)
4. The government must not pay an employee’s entire contribution under the Employees’ Pension Scheme.

Here is another illustration to help you understand how the eligibility criteria affect the deduction u/s 80JJAA.

XYZ Ltd has hired the following additional employees in the FY 2023-24. Based on the criteria mentioned above, let us understand if the conditions for the 80JJAA deduction are fulfilled.

Form 10DA is a mandatory document that must be filled and submitted by an employer when claiming a deduction under section 80JJA. It is essential to note that the Form 10DA due date is one month before the due date of filing the return.  Employers claiming the deduction must submit the form online on the Income Tax website. Moreover, a DSC is mandatory for Form 10DA.

The 80JJA deduction and calculation can be understood with the following simple example.

ZXY Ltd, a manufacturing company, has 100 employees in the year 2022-23. The cost of employees to the company is ₹20 lakhs. In FY 2023-24, the company hired an additional 75 employees and the cost of hiring them was ₹ 15 lakhs.

The 80 JJAA deduction will be calculated as follows:

Additional cost of employees in 2023-24= ₹15,00,000

Deduction under section 80JJAA = 30%

Deduction amount for ZXY Ltd = 15,00,000 * 30%= ₹4,50,000

Thus, ZXY Ltd can claim a deduction of ₹4,50,000 u/s 80JJAA.

•  Quantum of Deduction u/s 80JJAA 

Another essential concept under the 80JJAA provision is that of the quantum of deduction that an employer can claim. As per the provisions, an employer is eligible for a 30% deduction of the additional cost incurred for hiring additional employees.

The quantum or the amount of deduction will remain the same for all three consecutive years. For instance, if an assessee has claimed a deduction of ₹3,00,000 in the first year, he shall continue to claim a deduction of the same amount, irrespective of the changes in the employment status of the employees and their salary levels.

Thus, even if an additional employee leaves the organisation in the subsequent years or his salary per month increases beyond ₹25,000, the employer will continue to claim the deduction.

•  80JJAA Deduction for A.Y. 2024-25

For the AY 2024-25, employers fulfilling 80JJAA deduction eligibility can claim a deduction of 30% on the employee recruitment cost incurred by them. This deduction can be claimed for AY 2024-25, AY 2025-26 and AY 2026-27.

Thus, businesses can claim a total deduction of 90% in three years if they fulfill the following conditions.

1. The business must manufacture goods or produce goods as specified.
2. The per-month emolument limit of the employee must not exceed ₹25,000.
3. One must hire employees in the previous financial year.
4. A hired employee must work for at least 240 days in the previous year.
5. The business must be registered under the Employees’ Provident Funds and Miscellaneous Provisions Act of 1952.
6. The number of employees hired must be at least 10.

The deduction u/s 80JJAA will not be available for the following businesses/employers:

• If a new business is formed by reconstructing or splitting an existing business.
• A deduction cannot be claimed if the business is acquired as a result of business reorganisation.
• The assessee must mandatorily submit a report from a chartered accountant before filing the return to claim the deduction. Failure to submit the report will disqualify the business from claiming the deduction.

The introduction of section 80JJAA of the Income Tax Act encourages employees to create job opportunities, which solves the problem of unemployment in the country. For creating additional jobs, the business is eligible to claim a deduction of 30% of the additional employee cost, which reduces their tax liability.

However, to claim this deduction, the business and the employees must fulfill certain eligibility criteria specified in the act, which also includes submitting Form 10DA. Just as section 80JJAA allows businesses to claim a deduction of their additional employee cost, individuals can also enjoy health insurance premium deduction u/s 80D. 

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