In recent past, government of India in its effort to improve the economy, has been introducing lot of policies and incentives. One of such incentive is giving 30% extra benefit when any business employs new people. This is to simulate job creation in India.
The provisions regarding the same is laid out in Section 80JJA in Income Tax Act
Below is the extract of the provision:
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
Analysis of the above provision:
On plain reading of the provision it is quite clear that if tax audit is applicable to any business then additional deduction of 30% will be allowed under Income Tax.
Illustration:
Lets say company ABCD has sales of INR 10 Lacs. It employee cost on account of additional employee is INR 3 Lacs. Then profit for the year comes to INR 7 Lacs. In normal circumstances, Income Tax has to be paid on 7 Lacs which will come to INR 1.75 lacs @25%. Now company will be eligible to take additional benefit of 30% on INR 3 Lacs which comes to INR 90 thousand.
Therefore tax liability will be INR 1.5 lacs.
How does this provision Impact Business
First thing first, it will bring down the tax rate by 3-5% depending the cost model of the company
Since the tax rate will come down company can pass on the benefit of it to its consumer or clients
If a company is listed company then share-holders will gain more
Lastly businesses will be encouraged to additional work-force.
Conditions for availing this benefit
Business should be new one it should be not formed by reorganisation
The certificate has to be furnished in prescribed form
Salary paid to employees should be by account payee cheque, bank draft ,use of electronic clearing account or bank account
What is the definition of additional employee
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 twenty-five 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 (19 of 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;
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