Section 80JJAA of ITA, 1961 : Section 80Jjaa: Deduction In Respect Of Employment Of New Workmen

Explanation using Example

Imagine a software development company, XYZ Tech, that is eligible for tax audits under section 44AB of the Income-tax Act. In the financial year 2022-23, XYZ Tech expanded its team by hiring 10 new software engineers due to increased demand for its services. These new hires are considered 'additional employees' as per the Income-tax Act's definition because they increase the total number of employees compared to the last day of the preceding year.

The total additional employee cost (salaries paid to these new engineers) for the year was INR 24 lakhs. XYZ Tech can claim a deduction under Section 80JJAA, which is 30% of this additional cost, amounting to INR 7.2 lakhs. This deduction can be claimed for three consecutive assessment years, provided XYZ Tech continues to fulfill the conditions laid out in the Act.

To avail of this benefit, XYZ Tech must ensure that the business is not formed by splitting or reconstructing an existing business and does not fall under any of the disqualifications mentioned in the Act. They must also furnish a report by an accountant with their tax return, detailing the particulars of the employment and emoluments paid.