Income Tax Query


This is the deduction for creating new employment. 


Eligible Assessee:  

Ø  Assessee to whom section 44AB applies. 

Ø  Gross Total Income to include any profits and gains from business. 


Quantum of Deduction: 30 per cent of the additional employee cost incurred in the course of such business in the previous year. 


Additional Employee: 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 compared to the last day of the preceding year. 


Means that during a certain financial year, the number of new employees employed has to be compared with the number of employees as on the last day of the preceding year and only when these new employees increase the employee count, then they are called new employees.  


For ex, if some employees available as on last day of the preceding previous year resign or leave the employment during the previous year, their replacement will not be counted as a new employment. 


Means to say, there has to be a net increase in employment due to the additional employees. 


During the first year of a new business, the employees employed during that previous year are deemed as the additional employees. 


Exclusions from Additional Employees: The following persons are excluded from additional employees: 

Ø  Employees with total emoluments more than Rs.25000 per month. (Emoluments means any sum paid or payable to an employee excluding employer contribution to Provident Fund, Gratuity, Severance pay, leave encashment, voluntary retrenchment benefits, commutation of pension etc. paid at the time of termination of his service or superannuation or voluntary retirement

Ø  Employee for whom the entire contribution for Employees’ Pension Scheme (notified in accordance with the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952) is paid by the Government. 

Ø  Employee employed for a period of less than 240 days (in case of manufacturing of apparel, foot ware or leather products, less than 150 days) during the previous year. However, if the same person is employed for more than 240/150 days during the next year, deduction will be available for next year.  

Ø  Employee not participating in Recognised Provident Fund. 


Additional Employee Cost: Means total emoluments paid or payable to additional employees during the previous year. During the first year of a new business, the emoluments paid or payable to employees employed during the previous year shall be deemed to be additional employee cost. 


Exclusions from Additional Employee Cost: 

Ø  Additional employee cost is nil if there is no increase in the number of employees employed since the last day of the preceding year. 

Ø  Emoluments are paid otherwise than by an account payee cheque or an account payee bank draft or by use of electronic clearing system through a bank account or by prescribed electronic modes. 


Period of Deduction: For three assessment years including the assessment year relevant to the previous year in which such employment is provided. 


Denial of deduction in certain cases: 

Ø  If the business is formed by splitting up, or reconstruction of an existing business except as per section 33B: re-establishment, reconstruction or revival by the assessee of the business as a direct result of flood, typhoon, cyclone, earth-quake or other convulsion of nature, riot or civil disturbance, accidental fire or explosion, action by enemy or action taken in combating an enemy whether with or without a declaration of war etc. 

Ø  If the business is acquired by the assessee by way of transfer from any other person or as a result of any business reorganisation. 


Audit Requirements: Audit report in Form 10DA to be furnished on or before the specified date referred to in Section 44AB (which is one month prior to the due date for furnishing the return of income). That means, Form 10DA is to be submitted one month before the due date for furnishing the return of income. If return of income is submitted well before one month prior to the due date for furnishing the return of income, Form 10DA can be submitted along with the return of income also. 


Steps to calculate: 

1.     Find out total employees as on last day of the preceding financial year.  

2.     Deduct non-eligible employees like more than Rs.25000 per month salary etc. 

3.     Arrive at eligible employees for preceding year. 

4.     Repeat the exercise for the previous year in which deduction is sought to be claimed. 

5.     From the number arrived at in step 4, deduct the number arrived at in step 3. We will get the additional employees. 

6.     For the additional employees, calculate the emoluments paid during the year in which they are employed. This will be additional employee cost. 

7.     30% of additional employee cost can be claimed as deduction.