Budget 2021: Section 80JJAA of the Income Tax Act provides that every assessee, earning business income and liable to tax audit, is eligible to claim a deduction under the provision for additional employee cost. Section 80JJAA, provides for deduction of 30 per cent on emoluments paid to new employees, which can be claimed for three years. This is available upto an emolument of Rs 25,000 per month. The cap should either be removed or should be raised to Rs 50,000 per month to encourage employment in higher-skilled jobs, said industry body Confederation of Indian Industry (CII) said in its Pre-Budget Memorandum 2021-22. (Also Read: Budget 2021: Interest Subvention Scheme For MSMEs Must Be Extended, Says Industry Body )
Vikash Agarwal, President, Indian Chamber of Commerce (ICC) agreed that there is a need to incentivise new employment. Taxpayers can currently claim a deduction equal to 30 per cent of the amount of additional employee cost for employees having salary not more than Rs 25,000 per month under section 80JJAA of the Income Tax Act. The salary levels have increased from the year 2016, and the threshold of Rs 25,000 per month should be raised to at least Rs 50,000 per month, stated Mr Agarwal.
According to research and advisory firm, Taxmann, the deduction shall be allowed for 30 per cent of the additional employee cost in three assessment years. However, such a deduction shall be allowed only if the assessee fulfills certain conditions. One of the conditions is that emoluments must be paid by any of the following modes:
- An account payee cheque
- Account payee bank draft
- By using electronic clearing systems through a bank account, or
- Other prescribed electronic modes — credit card/debit card, IMPS, RTGS etc.
The condition is applicable in the case of an existing business only. However, Taxmann said in its pre-budget recommendations to the government that the above condition regarding the payment of emoluments through the four specific modes should be extended in case of new businesses also.