Section 80 JJAA – A Promising North Star

The Finance act, 2015 by widening the scope of Section 80JJAA has offered a fillip to employment generation in the manufacturing sector. It has effectively reduced the labour cost across manufacturing industries. The provisions of section 80JJAA are discussed in this article.

Eligible assessees:

Previously, the deduction was available only to company assessees. But with the amendment made by Finance Act 2015, it is available to all assesses deriving profits from the business of manufacturing of goods in a factory.

    ·     It is noteworthy that the assessee should be engaged in the business of manufacture of goods.

Quantum of deduction:

The assessee can claim a deduction of 30% of the additional wages paid to new regular

Workmen employed during the previous year.

•             Additional wages means the wages paid to newly employed workmen in excess of 50 workmen. For E.g., if there is an organisation with 75 workmen as on 01.04.2015, it hires another 110 workmen on 01.05.2015, the wages paid to the new 60 workmen (110 additionally hired workmen -50 workmen) will only qualify for deduction. Prior to the Finance act 2015, the threshold was 100 workmen. By lowering limit to 50 workmen the state has increased the social security avenues for labours by increasing employment opportunities.
•             Only wages paid to regular workmen employed are considered for the computation of deduction.

Conditions for claiming deduction:

•           The assessee should not have acquired the factory by way of transfer or as a result of any business reorganization. Previously, only acquisitions by transfer or hiving off or amalgamation were included as restrictions for deduction. Now after the amendment by Finance Act 2015, the ambit of the restriction has been widened to include any business reorganisation.
•           In case of an existing organisation, the workmen additionally employed during the previous year should account for at least 10% of the number of workmen as at the last day of the preceding previous year. In other words, there should be an increase of at least 10% in the strength of the workmen compared to the preceding financial year.
•           The assessee should furnish with the return of income, a report in Form no. 10DA duly certified by a Chartered Accountant.

Period of deduction:

The deduction is available for a period of three assessment years including the assessment year relevant to the previous year in which such employment is provided.