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Introduction:

The Income Tax Act of 1961 contains provisions that allow taxpayers to reduce their taxes by taking advantage of various deductions and exemptions. These provisions include section 80JJAA ,offering employers deductions for hiring new employees and meeting specific criteria.

In this blog post, we will provide a detailed overview of Section 80JJAA, including its basic provisions, eligibility and associated benefits. In addition, we will address general questions about this provision.

Section 80JJAA: 

Section 80JJAA of the Income Tax Act enables employers to claim a deduction for additional wages  to newly hired employees who meet certain criteria. This deduction applies to three consecutive assessment years beginning with the new employee’s first year of employment.

Section 80JJAA aims to incentivize employers to create new employment prospects in the existing sector and extend employment benefits to eligible employees. By offering tax deductions, the government is trying to entice employers to expand their workforce and, consequently, reduce the unemployment rate in the country.

Applicability of 80JJAA:

Section 80JJA of Income Tax Act deals with tax deductions in respect of capital gains and profits. This category allows  30% deduction for the increase in labor costs for three consecutive years of assessment.

While claiming tax deduction under Section 80JJAA, please note the following conditions to be fulfilled.

• Your work should be exclusively yours and should not be acquired from anyone else or as a result of some other business arrangement.
• You should refrain from establishing a business through the division or reconstruction of any existing business. Nevertheless, if you have revitalized, revived, or reconstructed the business, you are eligible to claim this deduction.
• You have to file the Income Tax Return (ITR) within the stipulated time and file the Chartered Accountant (CA) report in Form 10DA.
• The employer must hire new employees who have not been employed by any other employer in the preceding three years.
• New workers must earn wages that meet or exceed the minimum wage standards set by the government.

Deductions under  80JJAA:

The amount of deduction provided under  80JJA is 30% of  additional employee costs accumulated by the business. These additional employee costs can be calculated as the difference between total employeer costs for the current fiscal year and the previous fiscal year

The calculation of additional employee costs should be grounded on the following parameters:

• The person must have worked more than 240 days in the past year.
• The government would not have to pay contributions on the entire EPF scheme for employees.
• The total monthly salary of  employee should not exceed Rs. 25,000
• At least 10 employees must be employed in this prior year.
• The business should not have claimed any deduction under  80JJAA in the preceding year.

Advantages of the Section 80JJAA:

• Section 80JJAA acts as an incentive for employers to create job opportunities, which helps reduce unemployment. By encouraging the hiring of new workers, this program creates economic growth. In addition, it empowers business owners to provide tax savings, making it easier to reinvest in the business for further growth and expansion.
• In addition, Section 80JJAA encourages employers to enroll their employees in a pension scheme governed by the Employees Provident Fund and Miscellaneous Provisions Act, 1952. This scheme helps employees in retirement planning, and provides them with financial stability after retirement.
• Another benefit of Section 80JJAA is its role in providing job security to other employees. The provision mandates that new hires be employed for a minimum of 240 days per year, discouraging short-term employment practices and encouraging long-term employment opportunities.
• Under Section 80JJAA, employers are eligible to withhold 30% of the new salary distributed to new employees over a three-year assessment period. The maximum deduction allowed per annum is Rs 30,000.

Eligibility Criteria:

For employers to avail the deduction under Section 80JJAA, employers must meet the following eligibility criteria.

• The employer has been employed for at least three years.
• The employer can be an Indian company, a partnership, or a sole proprietorship.
• The employer must not have laid off any employees during the preceding year.

How to Claim Deduction under 80JJAA: 

Employers can claim  deduction under section 80JJAA by following these steps:

• Compute the supplementary wages disbursed to new employees who fulfill the conditions outlined in the provision.
• Calculate the exemption by multiplying the salary plus 30%.
• Ensure that the deduction is more than the maximum limit of Rs 30,000 per annum.
• Include the deduction in the Income Tax Return for the applicable assessment year.

Form 10DA:

The assessee is required to file a report in Form 10DA, which must be signed by a practicing Chartered Accountant. This notice has to be filed electronically along with the income tax returns prescribed for deduction under Section 80JJAA.

Points to Remember: 

• Keep the following points in mind for claiming tax deduction under Section 80JJAA of the Income Tax Act.
• If there is no increase in the number of people employed, any wage or bonus increase paid by the employer will not qualify for the deduction.
• If an employer has made wage adjustments during the year, the section will consider the employee’s average wage.
• Professionals are not eligible to claim the section 80JJAA deduction.
• Deductions are calculated annually, but these deductions can be claimed over three years.

Conclusion:

Section 80JJAA of the Income Tax Act provides a deduction for employers who hire new employees and meet certain criteria. This deduction operates for three consecutive assessment years, helping employers reduce their taxes. To take advantage of this discount, employers must meet the eligibility criteria set out in the policy and ensure their new employees meet specified conditions.