My client wants to claim s.80JJAA for new hires. What exactly is the deduction, and which conditions actually cause claims to fail?
Section 80JJAA gives an assessee to whom s.44AB applies, whose gross total income includes profits and gains derived from business, a deduction of thirty per cent of the additional employee cost incurred in the course of that business in the previous year, for three assessment years including the assessment year relevant to the previous year in which the employment is provided. The conditions that defeat claims in practice are in the Explanation, not in the operative sub-section: an employee earning more than twenty-five thousand rupees a month is not an "additional employee", nor is one employed for less than two hundred and forty days in the previous year (one hundred and fifty days for a manufacturer of apparel, footwear or leather products), nor one who does not participate in a recognised provident fund, nor one whose entire Employees' Pension Scheme contribution is paid by the Government. And the additional employee cost is nil for an existing business if there is no increase in the total number of employees over the last day of the preceding year, or if the emoluments are paid otherwise than by account payee cheque, account payee bank draft, electronic clearing system through a bank account, or such other prescribed electronic mode.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2020-04-01, reported as Section 80JJAA of the Income-tax Act, 1961, as amended up to 2024. It bears on section 80JJAA, section 80JJAA(1), section 80JJAA(2), section 80AC, section 80A(5), section 44AB, section 139(1), section 288, section 33B of the Income Tax Act 1961, in Deductions & Disallowances and Salary & Perquisites matters.
The section is a genuine cash benefit for labour-intensive businesses and it is routinely lost on mechanical grounds. Four traps recur. First, the report of the accountant — Form 10DA under Rule 19AB — must be furnished before the specified date referred to in s.44AB, which is earlier than the return due date, so a report filed with the return can already be late; a one-day delay of exactly that kind was condoned by the Delhi Tribunal in ManpowerGroup Services India. Second, the claim must be in the return: s.80A(5) bars a deduction under any provision of Part C of Chapter VI-A not claimed in the return of income, and s.80AC bars it altogether where the return is filed after the s.139(1) due date. Third, the mode-of-payment condition is absolute — cash emoluments make the additional employee cost nil for an existing business, whatever the merits. Fourth, the two-hundred-and-forty-day condition is not fatal on its own: the second proviso to the definition of "additional employee" deems an employee who falls short in one year but completes two hundred and forty (or one hundred and fifty) days in the immediately succeeding year to have been employed in that succeeding year. The definition of "emoluments" is generous — any sum paid or payable in lieu of employment, by whatever name called — and excludes only employer contributions to pension, provident or other statutory funds and lump-sum termination payments such as gratuity, severance pay, leave encashment, voluntary retrenchment benefits and commuted pension.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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This is a statement of the statutory position, not a case. Sub-section (1), identical in three separate texts of the section, reads: "Where the gross total income of an assessee to whom section 44AB applies, includes any profits and gains derived from business, there shall, subject to the conditions specified in sub-section (2), be allowed a deduction of an amount equal to thirty per cent of additional employee cost incurred in the course of such business in the previous year, for three assessment years including the assessment year relevant to the previous year in which such employment is provided." Sub-section (2) denies the deduction (a) if the business is formed by splitting up, or the reconstruction, of an existing business, with a proviso excepting a business formed as a result of re-establishment, reconstruction or revival in the circumstances and within the period specified in s.33B; (b) if the business is acquired by the assessee by way of transfer from any other person or as a result of any business reorganisation; and (c) unless the assessee furnishes the report of the accountant, as defined in the Explanation below s.288(2), before the specified date referred to in s.44AB, giving the prescribed particulars. The Explanation defines "additional employee cost" as the total emoluments paid or payable to additional employees employed during the previous year, nil for an existing business if there is no increase in the number of employees over the last day of the preceding year or if emoluments are paid otherwise than by account payee cheque, account payee bank draft, electronic clearing system through a bank account or such other prescribed electronic mode, and deems the emoluments paid or payable to employees employed during the first year of a new business to be the additional employee cost. "Additional employee" means an employee employed during the previous year whose employment increases the total number of employees over the last day of the preceding year, but excludes an employee whose total emoluments exceed twenty-five thousand rupees per month, an employee for whom the entire contribution is paid by the Government under the Employees' Pension Scheme, an employee employed for less than two hundred and forty days during the previous year (one hundred and fifty days for an assessee engaged in the business of manufacturing apparel, footwear or leather products), and an employee who does not participate in a recognised provident fund, with a second proviso deeming an employee who completes the required days in the immediately succeeding year to have been employed in that succeeding year. "Emoluments" means any sum paid or payable to an employee in lieu of his employment by whatever name called, excluding employer contributions to any pension fund, provident fund or other fund for the benefit of the employee under any law, and any lump sum paid or payable at the time of termination, superannuation or voluntary retirement such as gratuity, severance pay, leave encashment, voluntary retrenchment benefits, commutation of pension and the like.
Statutory position. The deduction is thirty per cent of additional employee cost, for three assessment years beginning with the assessment year relevant to the previous year in which the employment is provided, available to an assessee to whom s.44AB applies whose gross total income includes profits and gains derived from business. It is defeated by any of the three bars in sub-section (2), and its measure is cut to nil or reduced by the definitions in the Explanation — the twenty-five thousand rupee monthly ceiling, the two-hundred-and-forty-day (or one-hundred-and-fifty-day) service condition, the recognised provident fund condition, the Employees' Pension Scheme exclusion, the requirement of an increase in headcount over the preceding year, and the banking or electronic mode of payment condition.
Not a decided case. The architecture is that sub-section (1) fixes the rate and the three-year run, sub-section (2) supplies three disqualifications going to the business, and the Explanation does the real work by defining who counts as an additional employee and what counts as emoluments. Because the three-year entitlement attaches to the previous year in which the employment is provided, a claim in years two and three depends on the same cohort qualifying in the first year, which is why the second proviso to the definition of additional employee — deeming an employee who completes the days in the succeeding year to be employed then — matters so much in practice.
Where the gross total income of an assessee to whom section 44AB applies, includes any profits and gains derived from business, there shall, subject to the conditions specified in sub-section (2), be allowed a deduction of an amount equal to thirty per cent of additional employee cost incurred in the course of such business in the previous year, for three assessment years including the assessment year relevant to the previous year in which such employment is provided.
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Handle my notice → Ask a CA on WhatsAppSection 80JJAA gives an assessee to whom s.44AB applies, whose gross total income includes profits and gains derived from business, a deduction of thirty per cent of the additional employee cost incurred in the course of that business in the previous year, for three assessment years including the assessment year relevant to the previous year in which the employment is provided. The conditions that defeat claims in practice are in the Explanation, not in the operative sub-section: an employee earning more than twenty-five thousand rupees a month is not an "additional employee", nor is one employed for less than two hundred and forty days in the previous year (one hundred and fifty days for a manufacturer of apparel, footwear or leather products), nor one who does not participate in a recognised provident fund, nor one whose entire Employees' Pension Scheme contribution is paid by the Government. And the additional employee cost is nil for an existing business if there is no increase in the total number of employees over the last day of the preceding year, or if the emoluments are paid otherwise than by account payee cheque, account payee bank draft, electronic clearing system through a bank account, or such other prescribed electronic mode. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 80JJAA, section 80JJAA(1), section 80JJAA(2), section 80AC, section 80A(5), section 44AB, section 139(1), section 288, section 33B of the Income Tax Act 1961. It is reported as Section 80JJAA of the Income-tax Act, 1961, as amended up to 2024. The section is a genuine cash benefit for labour-intensive businesses and it is routinely lost on mechanical grounds. Four traps recur. First, the report of the accountant — Form 10DA under Rule 19AB — must be furnished before the specified date referred to in s.44AB, which is earlier than the return due date, so a report filed with the return can already be late; a one-day delay of exactly that kind was condoned by the Delhi Tribunal in ManpowerGroup Services India. Second, the claim must be in the return: s.80A(5) bars a deduction under any provision of Part C of Chapter VI-A not claimed in the return of income, and s.80AC bars it altogether where the return is filed after the s.139(1) due date. Third, the mode-of-payment condition is absolute — cash emoluments make the additional employee cost nil for an existing business, whatever the merits. Fourth, the two-hundred-and-forty-day condition is not fatal on its own: the second proviso to the definition of "additional employee" deems an employee who falls short in one year but completes two hundred and forty (or one hundred and fifty) days in the immediately succeeding year to have been employed in that succeeding year. The definition of "emoluments" is generous — any sum paid or payable in lieu of employment, by whatever name called — and excludes only employer contributions to pension, provident or other statutory funds and lump-sum termination payments such as gratuity, severance pay, leave encashment, voluntary retrenchment benefits and commuted pension. If it applies to you, the first step is this: Diarise the Form 10DA date against the specified date in s.44AB, not against the return due date; that is the deadline the section actually imposes through clause (c) of sub-section (2). Note that Rule 19AB still says 'along with the return of income'; the section's earlier deadline governs, so do not rely on the rule.
This is a statement of the statutory position, not a case. Sub-section (1), identical in three separate texts of the section, reads: "Where the gross total income of an assessee to whom section 44AB applies, includes any profits and gains derived from business, there shall, subject to the conditions specified in sub-section (2), be allowed a deduction of an amount equal to thirty per cent of additional employee cost incurred in the course of such business in the previous year, for three assessment years including the assessment year relevant to the previous year in which such employment is provided." Sub-section (2) denies the deduction (a) if the business is formed by splitting up, or the reconstruction, of an existing business, with a proviso excepting a business formed as a result of re-establishment, reconstruction or revival in the circumstances and within the period specified in s.33B; (b) if the business is acquired by the assessee by way of transfer from any other person or as a result of any business reorganisation; and (c) unless the assessee furnishes the report of the accountant, as defined in the Explanation below s.288(2), before the specified date referred to in s.44AB, giving the prescribed particulars. The Explanation defines "additional employee cost" as the total emoluments paid or payable to additional employees employed during the previous year, nil for an existing business if there is no increase in the number of employees over the last day of the preceding year or if emoluments are paid otherwise than by account payee cheque, account payee bank draft, electronic clearing system through a bank account or such other prescribed electronic mode, and deems the emoluments paid or payable to employees employed during the first year of a new business to be the additional employee cost. "Additional employee" means an employee employed during the previous year whose employment increases the total number of employees over the last day of the preceding year, but excludes an employee whose total emoluments exceed twenty-five thousand rupees per month, an employee for whom the entire contribution is paid by the Government under the Employees' Pension Scheme, an employee employed for less than two hundred and forty days during the previous year (one hundred and fifty days for an assessee engaged in the business of manufacturing apparel, footwear or leather products), and an employee who does not participate in a recognised provident fund, with a second proviso deeming an employee who completes the required days in the immediately succeeding year to have been employed in that succeeding year. "Emoluments" means any sum paid or payable to an employee in lieu of his employment by whatever name called, excluding employer contributions to any pension fund, provident fund or other fund for the benefit of the employee under any law, and any lump sum paid or payable at the time of termination, superannuation or voluntary retirement such as gratuity, severance pay, leave encashment, voluntary retrenchment benefits, commutation of pension and the like. The matter was decided on 2020-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Statutory position. The deduction is thirty per cent of additional employee cost, for three assessment years beginning with the assessment year relevant to the previous year in which the employment is provided, available to an assessee to whom s.44AB applies whose gross total income includes profits and gains derived from business. It is defeated by any of the three bars in sub-section (2), and its measure is cut to nil or reduced by the definitions in the Explanation — the twenty-five thousand rupee monthly ceiling, the two-hundred-and-forty-day (or one-hundred-and-fifty-day) service condition, the recognised provident fund condition, the Employees' Pension Scheme exclusion, the requirement of an increase in headcount over the preceding year, and the banking or electronic mode of payment condition.
Not a decided case. The architecture is that sub-section (1) fixes the rate and the three-year run, sub-section (2) supplies three disqualifications going to the business, and the Explanation does the real work by defining who counts as an additional employee and what counts as emoluments. Because the three-year entitlement attaches to the previous year in which the employment is provided, a claim in years two and three depends on the same cohort qualifying in the first year, which is why the second proviso to the definition of additional employee — deeming an employee who completes the days in the succeeding year to be employed then — matters so much in practice. In the words reproduced by the source cited on this page: "Where the gross total income of an assessee to whom section 44AB applies, includes any profits and gains derived from business, there shall, subject to the conditions specified in sub-section (2), be allowed a deduction of an amount equal to thirty per cent of additional employee cost incurred in the course of such business in the previous year, for three assessment years including the assessment year relevant to the previous year in which such employment is provided."
It was decided by the CBDT Circulars & Instructions on 2020-04-01 and is reported as Section 80JJAA of the Income-tax Act, 1961, as amended up to 2024. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 80JJAA, section 80JJAA(1), section 80JJAA(2), section 80AC, section 80A(5), section 44AB, section 139(1), section 288, section 33B, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Statutory position. The deduction is thirty per cent of additional employee cost, for three assessment years beginning with the assessment year relevant to the previous year in which the employment is provided, available to an assessee to whom s.44AB applies whose gross total income includes profits and gains derived from business. It is defeated by any of the three bars in sub-section (2), and its measure is cut to nil or reduced by the definitions in the Explanation — the twenty-five thousand rupee monthly ceiling, the two-hundred-and-forty-day (or one-hundred-and-fifty-day) service condition, the recognised provident fund condition, the Employees' Pension Scheme exclusion, the requirement of an increase in headcount over the preceding year, and the banking or electronic mode of payment condition. It arises in Deductions & Disallowances and Salary & Perquisites matters, on section 80JJAA, section 80JJAA(1), section 80JJAA(2), section 80AC, section 80A(5), section 44AB, section 139(1), section 288, section 33B of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Make the claim in the return itself and file the return by the s.139(1) due date — s.80A(5) and s.80AC each independently destroy a claim made late or made first in appeal. Run the employee master through each limb of the definition of 'additional employee' separately: monthly emoluments above twenty-five thousand rupees, days employed in the previous year, participation in a recognised provident fund, and whether the Government pays the entire Employees' Pension Scheme contribution. For employees who fall short of two hundred and forty days in year one, track them into year two and claim them there under the second proviso rather than abandoning them. Check the payment mode for every rupee of emoluments counted — anything paid otherwise than by account payee cheque, account payee bank draft, electronic clearing system through a bank account or prescribed electronic mode makes the additional employee cost nil for an existing business. Confirm the business is not hit by sub-section (2)(a) or (b) — formed by splitting up or reconstruction of an existing business, or acquired by transfer from another person or by business reorganisation — noting the s.33B proviso to clause (a) for re-establishment, reconstruction or revival. In the first year of a new business, remember the second proviso to the definition of additional employee cost deems the emoluments paid or payable to employees employed during that year to be the additional employee cost.
Still good law. In force. Sub-sections (1) and (2) are identical in three separate texts of the section, which is the strongest corroboration available from that source. The Explanation has been taken in full from two of them and agrees word for word, including every monetary figure, every number of days and every condition. The s.80AC text relied on carries the post-2018 two-limb form. Older reproductions of s.80AC print the pre-2018 text and must not be used, because the consequence of a late return under that section is the part of the scheme most often got wrong. No later amendment has been checked for and none is asserted. Two things a practitioner should nonetheless treat as live. The twenty-five thousand rupee monthly emoluments ceiling, the two hundred and forty day test (one hundred and fifty for apparel, footwear and leather products) and the thirty per cent rate are figures that have moved before and may move again; take them from the section for the year in hand. And the report requirement in clause (2)(c) is a condition of the deduction and not a procedural formality — it is expressed as 'unless the assessee furnishes the report' — so a report filed after the specified date defeats the claim on the words of the section, whatever the rule says about filing it with the return. No judicial treatment of the section has been checked beyond the single Tribunal order named in the editor's note, which is cited there only for a date and not for a proposition. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
DO NOT READ CURRENT s.80JJAA OFF AN OLD TEXT. Reproductions are in wide circulation that print the repealed pre-2016 provision, about 'new regular workmen', 'additional wages' and employment 'in excess of one hundred workmen'. That is not the law for any assessment year a practitioner is now handling, and it is a different scheme altogether. If the text in front of you speaks of workmen and wages rather than of employees and emoluments, it is the old section. The text used here comes from three separate texts of the section, which agree word for word on sub-sections (1) and (2); the Explanation has been taken in full from one of them and checked against a second. Form 10DA and Rule 19AB are taken from the rule itself, headed 'Form of report for claiming deduction under section 80JJAA', which reads in full: 'Report of an accountant which is required to be furnished by the assessee along with the return of income under clause (c) of sub-section (2) of section 80JJAA shall be in Form No. 10DA.' NOTE THE MISMATCH, AND DO NOT RESOLVE IT IN THE RULE'S FAVOUR. The rule still says 'along with the return of income', while clause (c) of s.80JJAA(2) as amended requires the report 'before the specified date referred to in section 44AB', which is earlier. The section governs. Rules are not published with the edition dates that sections carry, so it is not possible to say from the rule itself whether it has been conformed to the amended section. Three things are not independently sourced and are flagged as such. The working of the specified date for a given year is taken from a Tribunal order and not from a primary source: paragraph 27 of the Delhi Tribunal's order in ManpowerGroup Services India took the Form 10DA date for AY 2020-21 as 15 January 2021 against an extended return due date of 15 February 2021, and the extension notification has not been independently verified. The prescribed 'other electronic mode' in the second limb of the first proviso to 'additional employee cost' is fixed by rule and has not been looked up. And the date in 'decided_on' is the effective date of the amendment that substituted the specified-date requirement in clause (2)(c); it is not a decision date. One more thing the section does not say. Nothing in sub-section (2)(c) or in the Explanation fixes what happens where the report is filed on time but the particulars in it are later found wrong, and no consequence is prescribed for that case. Treat it as an open question rather than as a cure. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Statutory position. The deduction is thirty per cent of additional employee cost, for three assessment years beginning with the assessment year relevant to the previous year in which the employment is provided, available to an assessee to whom s.44AB applies whose gross total income includes profits and gains derived from business. It is defeated by any of the three bars in sub-section (2), and its measure is cut to nil or reduced by the definitions in the Explanation — the twenty-five thousand rupee monthly ceiling, the two-hundred-and-forty-day (or one-hundred-and-fifty-day) service condition, the recognised provident fund condition, the Employees' Pension Scheme exclusion, the requirement of an increase in headcount over the preceding year, and the banking or electronic mode of payment condition.
TaxSphere, “Statutory position — s.80JJAA: thirty per cent of additional employee cost for three years, and every condition that defeats it”, https://taxnotice.vittsphere.com/caselaw/case/statutory-position-80jjaa-additional-employee-cost-and-form-10da/ (validity last checked 2026-09-08)
The judgment itself is a government work and may be quoted freely. The summary, the validity note and the reasoning on this page are this library's own writing: quote them with attribution, and please do not present either as the words of the court — this page keeps the two apart and so should a quotation of it.
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