S.80JJAA- incentive for new and additional employment - must be further expanded, liberalized, and simplified to achieve its purpose.

S.80JJAA- incentive  for new and  additional employment  -  must be further expanded, liberalized, and simplified  to achieve its purpose.

Scope has been expanded since it was introduced:

S.80JJAA was inserted w.e.f. 01.04.1999 and has undergone several amendments to make it wider in scope.

Major amendment took place w.e.f. 01.04.2017 when the section was substituted after having been amended several time earlier.

 However, some area still need further relaxation and widening  to achieve the purpose of the incentive. Broadly, the following aspect need  further changes:

It can be extended to persons engaged in profession also.

It can be extended to persons deriving income under heads of income other than income from business also.

Limit of salary wage etc. was fixed at Rs. 25000 per month w.e.f. 01.04.2017  and it is still continuing at the same level. This need to be increased substantially. This is required in view of higher salary and wages need to be paid to skilled and efficient workman.

Rs.25K per month is not enough to attract talented people even in category of workman, artisan,  assistant, clerks  etc. Furthermore monthly emoluments limit can be fixed differently for different type of locations in our country for example capital cities, metro cities, other cities and townships based on population.

Requirement of assessee to whom section 44AB applies  need to be waived in view of increased limit for turnover and relaxation of  requirement in case of assesse whose  cash receipts and payments do not exceed 5% of total receipts and payments etc.

Requirement of employee to participate in employee’s provident fund can be waived.

Employees for whom entire contribution to pension fund is met by government is excluded. – This exclusion is not proper because purposes of two incentives are different.

Such changes will promote self-employment and to be employer concept for professionals and skilled people who can form a team of people and provide employment to others.

The section is quite complex and it need to be simplified The relevant Rule is Rule 19AB and prescribed form for report is FORM NO. 10 DA. These are also complex and need to be simplified.

The section is reproduced below with highlights for important aspects and catchwords for easy understanding.

The history of amendment is also reproduced with highlights to understand relaxation and widening of incentive over the period.

Observations and suggestions  of author are also mentioned.

10[Deduction in respect of employment of new employees.

80JJAA. (1) Where the gross total income of an assessee to whom section 44AB applies, includes any profits and gains derived from business, there shall, subject to the conditions specified in sub-section (2), be allowed a 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.

(2) No deduction under sub-section (1) shall be allowed,-

(a) if the business is formed by splitting up, or the reconstruction, of an existing business:

Provided that nothing contained in this clause shall apply in respect of a business which is formed as a result of re-establishment, reconstruction or revival by the assessee of the business in the circumstances and within the period specified in section 33B;

(b) if the business is acquired by the assessee by way of transfer from any other person or as a result of any business reorganisation;

(c) unless the assessee furnishes 15[the report of the accountant, as defined in the Explanation below sub-section (2) of section 288, before the specified date referred to in section 44AB] giving such particulars in the report as may be prescribed.

Explanation.-For the purposes of this section,-

(i) “additional employee cost” means the total emoluments paid or payable to additional employees employed during the previous year:

Provided that in the case of an existing business, the additional employee cost shall be nil, if-

(a) there is no increase in the number of employees from the total number of employees employed as on the last day of the preceding year;

(b) emoluments are paid otherwise than by an account payee cheque or account payee bank draft or by use of electronic clearing system through a 14[bank account or through such other electronic mode as may be prescribed]:

Provided further that in the first year of a new business, emoluments paid or payable to employees employed during that previous year shall be deemed to be the additional employee cost;

(ii) “additional employee” means an employee who has been employed during the previous year and whose employment has the effect of increasing the total number of employees employed by the employer as on the last day of the preceding year, but does not include-

(a) an employee whose total emoluments are more than twentyfive thousand rupees per month; or

(b) an employee for whom the entire contribution is paid by the Government under the Employees’ Pension Scheme notified in accordance with the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952; or

(c) an employee employed for a period of less than two hundred and forty days during the previous year; or

(d) an employee who does not participate in the recognised provident fund;

11[ Provided that in the case of an assessee who is engaged in the business of manufacturing of apparel 12[or footwear or leather products], 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 ]

13[Provided further that where an employee is employed during the previous year for a period of less than two hundred and forty days or one hundred and fifty days, as the case may be, but is employed for a period of two hundred and forty days or one hundred and fifty days, as the case may be, in the immediately succeeding year, he shall be deemed to have been employed in the succeeding year and the provisions of this section shall apply accordingly;]

Observations   ( initial year of employment  is switched to second year in case of working days are less than prescribed}

(iii) “emoluments” means any sum paid or payable to an employee in lieu of his employment by whatever name called, but does not include-

(a) any contribution paid or payable by the employer to any pension fund or provident fund or any other fund for the benefit of the employee under any law for the time being in force; and

(b) any lump-sum payment paid or payable to an employee at the time of termination of his service or superannuation or voluntary retirement, such as gratuity, severance pay, leave encashment, voluntary retrenchment benefits, commutation of pension and the like.

(in simple words   salary or wage, bonus, over time etc. are covered and total need to be averaged for monthly limit of Rs.25K.

(3) The provisions of this section, as they stood immediately prior to their amendment by the Finance Act, 2016, shall apply to an assessee eligible to claim any deduction for any assessment year commencing on or before the 1st day of April, 2016.]

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Notes :-

1. Inserted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999.

2. Substituted vide Finance Act, 2013 w.e.f. 1st day of April, 2014, before it was read as,

“(1) Where the gross total income of an assessee, being an Indian company, includes any profits and gains derived from any industrial undertaking engaged in the manufacture or production of article or thing, there shall, subject to the conditions specified in sub-section (2), be allowed a deduction of an amount equal to thirty per cent of additional wages paid to the new regular workmen employed by the assessee in the previous year for three assessment years including the assessment year relevant to the previous year in which such employment is provided.”

There have been liberalization on many aspects by amendments.

3. Substituted vide Finance Act, 2013 w.e.f. 1st day of April, 2014, before it was read as, “(a) if the industrial undertaking is formed by splitting up or reconstruction of an existing undertaking or amalgamation with another industrial undertaking;”

4. Substituted vide Finance Act, 2013 w.e.f. 1st day of April, 2014 before it was read as, “undertaking”

5. Substituted vide Finance Act, 2013 w.e.f. 1st day of April, 2014 before it was read as, “undertaking”

6. Inserted vide Finance Act, 2013 w.e.f. 1st day of April, 2014

7. Omitted vide THE FINANCE ACT, 2015 w.e.f. 1st day of April, 2016, before it was read as, “being an Indian company,”

8. Substituted vide THE FINANCE ACT, 2015 w.e.f. 1st day of April, 2016, before it was read as, 3[(a) if the factory is hived off or transferred from another existing entity or acquired by the assessee company as a result of amalgamation with another company]

9. Substituted vide THE FINANCE ACT, 2015 w.e.f. 1st day of April, 2016, before it was read as, one hundred workmen

10. Substituted vide THE FINANCE ACT, 2016  w.e.f. 1st day of April, 2017 before it was read as,

1[Deduction in respect of employment of new workmen.

80JJAA. 2[(1) Where the gross total income of an assessee, 7[***] includes any profits and gains derived from the manufacture of goods in a factory, there shall, subject to the conditions specified in sub-section (2), be allowed a deduction of an amount equal to thirty per cent of additional wages paid to the new regular workmen employed by the assessee in such factory, in the previous year, for three assessment years including the assessment year relevant to the previous year in which such employment is provided.]

(2) No deduction under sub-section (1) shall be allowed-

8[(a) if the factory is acquired by the assessee by way of transfer from any other person or as a result of any business reorganisation;]

(b) unless the assessee furnishes along with the return of income the report of the accountant, as defined in the Explanation below sub-section (2) of section 288 giving such particulars in the report as may be prescribed.

Explanation.-For the purposes of this section, the expressions,-

(i) additional wages means the wages paid to the new regular workmen in excess of 9[fifty workmen] employed during the previous year :

Provided that in the case of an existing 4[factory], the additional wages shall be nil if the increase in the number of regular workmen employed during the year is less than ten per cent of existing number of workmen employed in such 5[factory ] as on the last day of the preceding year;

(ii) regular workman, does not include-

(a) a casual workman; or

(b) a workman employed through contract labour; or

(c) any other workman employed for a period of less than three hundred days during the previous year;

(iii) workman shall have the meaning assigned to it in clause (s) of section 2 of the Industrial Disputes Act, 1947 (14 of 1947).]

6[(iv) “factory” shall have the same meaning as assigned to it in clause (m) of section 2 of the Factories Act, 1948 (63 of 1948).]

11. Inserted vide THE TAXATION LAWS (AMENDMENT) ACT, 2016 w.e.f. 1st day of April, 2017

12. Inserted vide THE FINANCE ACT, 2018, w.e.f. 1st day of April, 2019

13. Inserted vide THE FINANCE ACT, 2018, w.e.f. 1st day of April, 2019

14. Substituted vide FINANCE (NO. 2) ACT, 2019 w.e.f. 01-04-2020 before it was read as bank account

15. Substituted vide Finance Act, 2020 dated 27-03-2020 w.e.f. 01-04-2020 before it was read as 

along with the return of income the report of the accountant, as defined in the Explanation to section 288