30% Deductions for All Business Falling Under Tax Audit

section-80jjaa-of-i-t-actThe intention of the present-day government to create jobs is clearly  visible as they have provided incentive to create , recruit the new workforce . More so , because the incentive is for employing lower level work force whose numbers are much higher than others . One has reason to lament that the previosu government had brought this provision under Income Tax Act , but was written in a manner to benefit only big industries and not the business carried out by Small & Medium Enterprises . Add to this , the fact that for apparel manufacturing sector , more relief has been given  as the  Taxation Laws (Amendment ) Act 2016  got assent of  the President of India on 8th Seprember 2016 .

What is that Incentive for Creating Jobs?

Nothing new . Section 80JJAA was present in the Income Tax Act for quite some years . But only after the Finance Act 2016 , when this provision is relaxed to the extent that every business can not get relief for adding workers . The biggest change is that now  incentive of 30% deduction u/s 80JJAA is available to  all kinds of businesses and not just manufacturing sector.  Salient features of the new provision under section 80JJAA can be summed up as under:

  1. It is available for all kinds of businesses and not just the manufacturing business.
  2. Even if you add one or ten worker, you are eligible for deduction u/s 80JJAA . Previously, there must be at least 100 workmen for being eligible for the deductions.The condition that minimum increase in the workforce in a year should be 10% has been removed. Even 1 % increase will make you eligible for the deduction. So, if there is no increase in number of employees, no deduction under sec. 80JJAA can be claimed.
  3. Minimum number of days of employment in a year is reduced from 300 days to 240 days. But for apparel manufacturers , the government has further relaxed vide Taxation Laws (Amendment ) Act 2016 that instead of 240 days , 180 days of work will be sufficuent. Following proviso wase inserted after clause (ii) of Explanation to sub-section (2) of section 80JJAA of the Taxation Laws (Amendment) Act, 2016, w.e.f. 1-4-2017 :Provided that in the case of an assessee who is engaged in the business of manufacturing of apparel, the provisions of sub-clause (c) shall have effect as if for the words “two hundred and forty days”, the words “one hundred and fifty days” had been substituted.The deduction is with respect to the emoluments paid to a worker .
  4. This deduction is only allowable for worker getting a salary less than Rs. 25000.
  5. The deduction is not allowable in case of an employee who is already paid entire contribution under Employees Pension Fund.
  6. Employee must participate in recognized provident fund.

FAQs on Deduction u/s 80JJAA

When can you claim deduction under section 80JJAA ?

Anyone carrying business , but falling under section 44AB i.e whose case is audited under section 44AB of the Income Tax Act. A professional can not take this relief.

Who can claim the deduction u/s 80JJAA ?

Anyone carrying business , but falling under section 44AB i.e whose case is audited under section 44AB of the Income Tax Act. A professional can not take this relief.

How the deduction is computed ?

As per section 80JJAA , you as a business entity can claim 30% of total wages paid on additional workforce employed .

The exact word in the provision is

” deduction of an amount equal to thirty per cent of additional employee cost incurred in the course of such business in the previous year, for three assessment years including the assessment year relevant to the previous year in which such employment is provided.”

So , say in assessment year 2017-18 , (FY 2016-17) , you employed 5 workers , all being paid Rs 15,000 per month for the whole year . It means , total cost on new worker is 15000 x 12x 5= Rs, 9,00,000

So, you can claim deduction u/s 80JJAA 30% x 9,00,000= 2,70,000 while computing total income for assessment year 2017-18.

Next , year if again some workers are employed, the deduction can be claimed in case of those employees wages.

What are conditions related to employment of new worker ?

  1. Workers must be employed for minimum 240 days . In case of apparel manufacturers , 180 days jobs is minimum for claim of deduction u/s 80JJAA
  2. Workers must not have received full payment under Employees Pension Fund.
  3. Worker must be participating to recognized providend fund .
  4. Worker must not be getting salary more than 25,000

Can existing business claim deduction under section 80JJAA ?

Yes, existing business can claim deduction u/s 80JJAA provided they fulfill all the conditions

What is the meaning of new worker ?

It simply means new employment every year. So for example you had total worker during FY 2015-16 , say 100. So if in the year 2016-17 , you employed 10 workers , and all conditions are fulfilled , the deduction of 30% is allowed on wages paid for 10 workers. So total worker at the end of FY 2016-17 is now 110 , if now you employed 2 new worker in Fy 2017-18 , you can claim 30% deduction on those two workers only. Then in last year in which the deduction is claimable is Fy 2018-19, say you employed 5 workers, you can claim 30% on wages of those 5 workers.

After that deduction is not allowed.

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