Eligibility:
- Applicable to Assessees:
- Indian companies or individuals, HUFs, partnerships, or other entities engaged in business.
- Assessee must have income from business and must be liable for audit under Section 44AB (Tax Audit).
- Eligible Business:
- All businesses except businesses engaged in manufacturing or production of apparel, footwear, or leather products (for which separate provisions apply).
Quantum of Deduction:
- Deduction Amount:
- 30% of additional employee cost for three assessment years, including the year in which the employment is created.
Key Definitions:
- Additional Employee:
- A person employed during the financial year.
- Excludes:
- Employees whose total monthly emoluments exceed ₹25,000.
- Apprentices under the Apprentices Act, 1961.
- Employees working for less than 240 days in a year (150 days for businesses in the manufacturing of apparel, footwear, or leather products).
- Rehired employees or employees transferred from another business.
- Additional Employee Cost:
- Total emoluments paid or payable to additional employees during the financial year.
- For existing businesses: Only the increase in employee cost over the previous financial year is considered.
- For new businesses: The total emoluments paid or payable are treated as additional employee cost.
- Emoluments:
- Wages paid or payable to employees but excludes:
- Employer contributions to provident funds or other funds.
- Perquisites as defined in Section 17(2).
- Any lump-sum payments like gratuity or severance pay.
- Wages paid or payable to employees but excludes:
Conditions for Claiming Deduction:
- Payment through Banking Channels:
- Salary or wages must be paid through bank transfers or account payee cheques to qualify.
- Statutory Compliance:
- Employers must comply with statutory obligations like provident fund and employee welfare contributions.
- Audit Requirement:
- The deduction can only be claimed if the taxpayer’s accounts are audited, and the auditor certifies the details in the prescribed Form 10DA.
- Threshold for Days of Employment:
- Employees must work for at least:
- 240 days in the financial year (general).
- 150 days for businesses in manufacturing apparel, footwear, or leather products.
- Employees must work for at least:
Exclusions:
- Employees employed by a business in case of reconstruction or reorganization of an existing business.
- Employees in cases where the business takes over another business.
Illustration:
- Suppose a business employs 50 new employees, each with a monthly salary of ₹20,000.
- The annual emoluments for these employees = ₹20,000 × 12 × 50 = ₹1,20,00,000.
- Deduction: 30% of ₹1,20,00,000 = ₹36,00,000 (for 3 consecutive years).
Important Points:
- Carry Forward of Unclaimed Deduction:
- No provision exists for carrying forward this deduction if not claimed in the respective assessment year.
- Applicability to Startups:
- Startups also benefit from this deduction as long as they meet the criteria.
- Misreporting or Non-Compliance:
- Any misreporting in claiming this deduction may result in penalties or disallowance of the deduction.
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