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New Income Tax Regime: 30% deduction on additional employee cost allowed for certain assessees

Rajeev Kumar
new tax regime deductions

New Income Tax Regime Deduction under Section 80 JJAA: Under the new tax regime for FY 2020-21, only two types of deductions are available. First is on the employer’s contribution to the National Pension System (NPS) account of the employee and second is under Section 80 JJAA. Here’s a look at who can benefit from Section 80 JJAA under the new income tax regime:

Section 80 JJAA is applicable from AY 2017-18. This section allows deduction in respect of additional employment cost of new employees under Chapter VI-A of the Income Tax Act. The deduction can be claimed by assessees who have started a new firm, hired new employees and whose tax returns need to be audited.

Under this section of the Income Tax Act, the additional employee cost means the total emoluments paid or payable to additional employees. The additional employee refers to an employee who was hired during the previous year but qualifies the following conditions:

  • His/her total salary is not over Rs 25,000/month
  •  S/he had been employed for more than 240 days in the previous year. The day-limit is 150 days for those engaged in the manufacture of apparel or footwear or leather products.
  • S/he is a member of a recognised provident fund. So in case an employer appoints 10 employees in a financial year, out of which four do not participate in a recognised provident fund, then the employer will be able to claim deduction only in respect of six employees.
  • His/her entire contribution is not paid by the Government under the Employees’ Pension Scheme.

Conditions to claim deduction under Section 80 JJAA in ITR

The assessee has to satisfy the following conditions to claim deduction under Section 80 JJAA:

  • The assessee must have income from ‘Business Head’ and is required to get his/her account audited as per section 44AB along with report of a CA in Form 10 DA.
  • The business should be new, and not formed by splitting up or reconstruction of an already existing business.
  • The business should not be acquired by way of transfer from any other person.
  • The deduction under Section 80 JJAA needs to be claimed in the income tax return.

The total amount of deduction available to an assessee under Section 80 JJAA is 30 per cent of the additional employee cost for three consecutive years.

Under this section, any sum paid or payable to employees is considered as ’emoluments’. However, the employer ‘s contribution to statutory funds and lump sum payment at the time of termination or voluntary retirement such as gratuity, leave encashment etc.