- Published: Thursday, 18 January 2018 15:14
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Under section 80JJJAA, which came into effect from fiscal 2016-17 and replaced an earlier provision, 30% of additional employee cost is available as a deduction for three years, including the year in which the new employment is generated. Companies who have a turnover of Rs 1 crore or more are eligible to claim benefits for new employment created by them. Govt may tweak tax laws for job creation. Various conditions have been set out in this section. If an individual is employed for less than 240 days in the first year, such an individual is not treated as an additional (or new) employee. For the textile sector, a lower threshold of 150 days has been set. Further, if the monthly salary of any additional employees exceeds Rs 25,000, then the salary of such employees are excluded for the purpose of computing the additional employee cost against which the benefit is available.
In its pre-Budget memorandum, Ficci points out that in a scenario where an employee has worked for less than 240 days in the first year, but for the entire year in year two and year three, even if all the other conditions are met with, the company will still not be able get the corresponding benefit under this section in any of the three years.
EY India partner & national tax leader Sudhir Kapadia explains, "Significant uncertainty arises in respect of those hired from August onwards as they are not able to complete 240 days in the first year. Employers are not incentivised to hire post-July, in any given year." "The condition of completion of 240 days by an employee should be tested in two consecutive years instead of only the first year. Thus, if the employee fulfils the condition cumulatively in the first two years of employment, the company should be allowed to claim the additional deduction from years two to four," he adds.
P V Srinivasan, an industry veteran and now a practising chartered accountant, says, "Further, if an employee's salary exceeds Rs 25,000 per month, such an employee is not treated as an 'additional employee' for the purpose of computing the benefits under this section. This largely disqualifies the service sector, including the IT sector." Ficci recommends that this limit be increased to at least Rs 50,000 per month. Kapadia adds, "This ceiling limit does not address the normal increments over the next two years. The limit of Rs 25,000 per month should apply only for the first year and be capped at Rs 50,000 in the next two years."
Srinivasan concludes, "Currently, only the formal sector is covered as it excludes employees who do not participate in the recognised provident fund. Section 80JJJAA incentives do not much advance the object of generation of employment, since employment obligation typically is long-term whereas the incentive is only for three years. The government should facilitate fixed-term employment contracts (say, of three years tenure), rather than focusing on permanent employment. This will be more in sync with the industry's changing needs and also help in employment generation."
(Source: The Times Of India)