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.

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.

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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