SECTION 80JJAA TAX BENEFIT

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1 SECTION 80JJAA TAX BENEFIT EST READING TIME : 15 TO 25 MINS BEST VIEWED IN LANDSCAPE MODE ON MOBILE PHONES

2 CONTENTS 2 Particulars SECTION 80 JJAA LEGISLATION, AS AMENDED BY FINANCE ACT, 2016 Page No. 3 HOW DOES EMPLOYEE PROVIDENT FUND WORK 8 SECTION 80JJAA BENEFIT FOR EMPLOYER 10 SECTION 80JJAA BENEFIT FOR EMPLOYEE 12 SERVICES PROVIDED BY BJAA PEOPLE AND TAX ADVISORY 14 APPENDIX 19

3 3 SECTION 80 JJAA AS AMENDED BY FINANCE ACT, 2016

80JJAA : AN INTRODUCTION 4 THE OLD 80JJAA Deduction of thirty percent of additional wages paid to new

The provisions apply to the business of manufacture of goods in a factory where 'workmen are employed

Further, benefits are allowed only if there is an increase of at least ten percent in total number of

THE NEW 80JJAA Deduction shall be available in respect of cost incurred on ANY EMPLOYEE whose TOTAL

Minimum number of days of employment in a financial year to be 240 days and any increase in the number

4 80JJAA : AN INTRODUCTION 4 THE OLD 80JJAA Deduction of thirty percent of additional wages paid to new regular workmen in a factory for three years. The provisions apply to the business of manufacture of goods in a factory where 'workmen are employed for not less than three hundred days in a previous year. Further, benefits are allowed only if there is an increase of at least ten percent in total number of workmen employed on the last day of the preceding year. THE NEW 80JJAA Deduction shall be available in respect of cost incurred on ANY EMPLOYEE whose TOTAL SALARY IS LESS THAN OR EQUAL TO TWENTY FIVE THOUSAND RUPEES PER MONTH. Minimum number of days of employment in a financial year to be 240 days and any increase in the number of employees will be eligible for deduction under the provision. In First year of a new business, thirty percent of all salary paid or payable to the employees employed during the previous year shall be allowed as deduction. Provident Fund Compliance is mandatory for such employees

ELIGIBILITY l CONDITIONS l DEDUCTIONS 5 Eligibility 1. Assessee to whom Section 44AB applies and Income includes any profits and gains derived from business. 2.

5 ELIGIBILITY l CONDITIONS l DEDUCTIONS 5 Eligibility 1. Assessee to whom Section 44AB applies and Income includes any profits and gains derived from business. 2. Section 44AB (Income Tax Audit) requires turnover of above INR 2 Crores Period of Deduction (Spread Over 3 Years) For three assessment years including the assessment year relevant to the previous year in which such employment is provided. Deduction Deduction of an amount equal to 30% of additional employee cost incurred Condition for Deduction Conditions to be satisfied for 80JJAA qualification:- 1. Furnish along with the Income Tax Return a report from Chartered Accountant in prescribed Form 10DA. 2. Business should not be formed by splitting up, or the reconstruction of an existing business. 3. Business should not be acquired by the assessee by way of transfer from any other person or as a result of any business re-organisation

EXPLANATIONS TO 80JJAA 6 Additional Employee Cost Means the total emoluments paid or payable to additional employees employed during the year Additional Employee Means an ELIGIBLE EMPLOYEE (A) In the

6 EXPLANATIONS TO 80JJAA 6 Additional Employee Cost Means the total emoluments paid or payable to additional employees employed during the year Additional Employee Means an ELIGIBLE EMPLOYEE (A) In the case of an existing business, the additional employee cost shall be NIL, if there is no increase in the number of employees from the total number of employees employed as on the last day of the preceding year (31st March) emoluments are paid other than than by an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account (B) In the first year of a new business, emoluments paid or payable to employees employed during that year shall be deemed to be the additional employee cost Means an employee who has been employed during the previous year and whose employment has the effect of increasing the total number of employees employed as on the last day of the preceding year, but does not include an employee whose total emoluments are more than twenty-five thousand rupees per month or an employee employed for a period of less than two hundred and forty days during the previous year; or an employee who does not participate in the recognized provident fund; an employee for whom the entire contribution to EPF is paid by the Government or

80JJAA SNAPSHOT 7 Business has turnover exceeding INR 2

(Eligible Employee) Employees should be onroll for a

should be EPF Compliant for Eligible Employees Payment

employee appointment results in an increase in the total

year. The cost of INR 25,0000 per month per employee can

25,000 PER MONTH FOR EACH ELIGIBLE EMPLOYEE IN ADDITION

would be reduced by INR 3,00,000 over 3 years / INR

7 80JJAA SNAPSHOT 7 Business has turnover exceeding INR 2 Crs Employees whose CTC is less than 25,000 per month (Eligible Employee) Employees should be onroll for a period of more than 240 days in the entire year Company should be EPF Compliant for Eligible Employees Payment only through Banking Channel Deduction is only where employee appointment results in an increase in the total number of employees from 31 st March of the preceding year. The cost of INR 25,0000 per month per employee can be availed as a deduction under Section 80JJAA over a period of 3 30% per year. 80JJAA Benefitin Numbers At an average amount of INR 25,000 PER MONTH FOR EACH ELIGIBLE EMPLOYEE IN ADDITION to the Employee Cost, the Taxable Profit of a Company would be reduced by INR 3,00,000 over 3 years / INR 90,000 per year PER ELIGIBLE EMPLOYEE Refer Appendix 1,2,3 and 4 for detailed legislations and calculations

8 8 HOW DOES EMPLOYEE PROVIDENT WORK?

9 Employers Contribution 1. Employer contributes 12% of employees basic salary (plus dearness allowance, if any) into employees EPF Account. 2. The entire 12% of employers contribution goes as under (a) 3.67% (out of 12%) into employees EPF account (b) 8.33% (out of 12%) to employee's EPS (Employee s Pension Scheme). 3. If employees basic pay is above INR 15,000 per month, employer can contribute 8.33% of INR 15,000 (i.e. Rs. 1250) to EPS and the balance INR 250 goes into EPF account. Employer Compliance 1. EPF Registration Process in Completely online 2. All Filings and Payment of EPF are online 3. <Add more benefits here> Employers minimum contribution to EPF will be INR 1,800(15,000*12%), even if employees salary is less than INR 15, Employees Contribution 1. Employee contributes 12% of his basic salary (plus dearness allowance, if any) and his entire contribution goes to Employees Provident Fund Account. 2. Usually this deducted from the monthly payout to the Employee and Forms part of the CTC of Employees Interest on EPF and EPF 1. EPF interest rates are determined by the EPF Board and are currently around of 8.65% on yearly basis 2. Employees can view their EPF Balances anytime online 3. EPF Balances are transferable when employees change jobs so no hassles on transferring balance

10 10 SECTION 80 JJAA LEGISLATION BENEFITS FOR EMPLOYERS

11 01 02 03 04 Double Deduction Benefit at 30% per year for a period of three years By complying to Section 80JJAA, the employer gets an additional deduction of 30% of the additional cost of

11 Double Deduction Benefit at 30% per year for a period of three years By complying to Section 80JJAA, the employer gets an additional deduction of 30% of the additional cost of employees over a period of 3 years Deduction and Tax Benefit on Employers Contribution to PF Employers gets the deduction of such amount contributed to EPF. Deduction of EPF Admin Expenses Income-tax Act, 1961 allows deduction for expenses payable as an employer Indicates Organizations contribution towards it s employees Improves Corporate image of the Organization

12 12 SECTION 80 JJAA LEGISLATION BENEFITS FOR EMPLOYEES

13 CBenefits Employee gets the deduction of such amount contributed to EPF in computing their Individual Tax Liability. Hence lesser Income Tax Payable INTEREST ON PPF AND TAX IMPACT Employees earn Interest on the PPF Balance Savings Habit Such type of schemes leads to creation savings habit among the employees. Other EPF Benefits 1. Employee can withdraw form his accumulations to cater financial exigencies 2. On resignation the employer gets back his PF contribution, Employers contribution and Interest

14 14 HOW PEOPLE AND TAX BJAA WILL HELP

15 80JJAA Cost Benefit Analysis Provide a numerical analysis of the Cost of Compliance for the Organisation vs the benefits Sensitize management of the requirements for eligibility of Section 80JJAA Income Tax Certification Certification of Form No. 10DA - Report under section 80JJAA of the Income-tax Act, 1961 AND Rule - 19AB of Income Tax Rules EPF Registration Facilitate EPF Registration registration for Employees Facilitate on-going labour compliance BJAA SERVICES 03 Revised Tax Structures for Employees post implementation 15 Provide Tax Effective Compensation Structures for Employees post implementation Get Tie Ups with Labour Consultants to facilitate labour compliance by Employers Employee Communications Provide letters/ for employee communications for change in compensation structure

16 16 PEOPLE AND TAX BJAA

17 WHY BANSHI JAIN AND ASSOCIATES (BJAA)? 17 Tax Expertise Qualified Team Research on the Law Partners with over 30+ years of experience in the Tax Advisory Dedicated team of professionals with sound understanding and knowledge of the Act Ready Checklists and Tool-kits due to on-going and continuous research on the law Offering Host of Professional Services under one roof Your preferred Tax and People Advisory Partners

18 GET 80JJAA BENEFITS 18 Anuj B Golecha anuj.golecha@bjaa.in Rahul Golecha rahul.golecha@bjaa.in Eshank M Shah eshank.shah@bjaa.in Rohit Golecha rohit.golecha@bjaa.in For private circulation only This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, Banshi Jain and Associates, its employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. Without prior permission of Banshi Jain and Associates, this publication may not be quoted in whole or in part or otherwise referred to in any documents.

19 APPENDIX 19

20 APPENDIX 1 : EXPLANATORY MEMORANUM TO FINANCE BILL, 2016 The existing provisions of Section 80JJAA provide for a deduction of thirty percent of additional wages paid to new regular workmen in a factory for three years. 20 The provisions apply to the business of manufacture of goods in a factory where 'workmen are employed for not less than three hundred days in a previous year. Further, benefits are allowed only if there is an increase of at least ten percent in total number of workmen employed on the last day of the preceding year. With a view to extend this employment generation incentive to all sectors, it is proposed to provide that the deduction under the said provisions shall be available in respect of cost incurred on any employee whose total emoluments are less than or equal to twenty five thousand rupees per month. No deduction, however, shall be allowed in respect of cost incurred on those employees, for whom the entire contribution under Employees' Pension Scheme notified in accordance with Employees' Provident Fund and Miscellaneous Provisions Act, 1952, is paid by the Government. It is further proposed to relax the norms for minimum number of days of employment in a financial year from 300 days to 240days and also the condition of ten per cent increase in number of employees every year is proposed to be done away with so that any increase in the number of employees will be eligible for deduction under the provision. It is also proposed to provide that in the first year of a new business, thirty percent of all emoluments paid or payable to the employees employed during the previous year shall be allowed as deduction. This amendment will take effect from 1stApril, 2017 and will accordingly apply in relation to assessment year and subsequent assessment years.

21 APPENDIX 2 : APPLICABILITY OF EMPLOYEES' PROVIDENT FUND AND MISCELLANEOUS PROVISIONS ACT ' The Employees' Provident Fund and Miscellaneous Provisions Act 1952 applies to the whole India except Jammu & Kashmir. Employees' Provident Fund and Miscellaneous Provisions Act 1952 is applicable to: Every establishment which is engaged in any one or more of the industries specified in Schedule I of the Act or any activity notified by Central Government in the Official Gazette. Employing 20 or more persons. Cinema Theatres employing 5 or more persons. The establishment to which this Act applies shall continue to be governed by this Act, even if the number of employees falls below 20 at a later date. The Act does not apply to : The co-operative societies employing less than 50 persons and working without the aid of power Voluntary Coverage If any of the establishment is not satisfying the above two conditions for coverage and if the employer and majority of the employees are willing, the Act may be applicable to such establishment

22 APPENDIX 3 : PROVIDENT FUND COMPOSITION DETAILS The basic condition for Deduction u/s80jjaa, the employee should participate in the Recognized Provident Fund, so below are the numerical details of EPF :- 22 Scheme Name Employee contribution Employer contribution Employee provident fund 12% 3.67% Employees Pension scheme % Employees Deposit linked insurance 0 0.5% (capped at a maximum of Rs 15,000) EPF Administrative charges % (From Jan 2015) 1.1% (Earlier) PF Admin account 1.1% EDLIS Administrative charges %

23 APPENDIX 4 : NET BENEFIT TO COMPANY U/S 80 JJAA Assumed PER EMPLOYEE Salary of INR 20,000 per month 23 Particulars Amount (Per Month) EPF (Employers Contribution) 20,000*3.67% = INR 743 EPS (Employers Contribution) 20,000*8.33% = INR 1,666 Employees Deposit linked insurance 15,000*0.5% = INR 75 EPF Administrative charges 20,000*0.85% = INR 170 PF Admin account 20,000*1.1% = INR 220 EDLIS Administrative charges 20,000*0.01%= INR 2 Total Cost Of Company (per month) 1. Cost of Company for Provident Fund INR 2,876 (per month) 2,876 per month (x) 12months (x) 3years= 1,03,536 INR (Yearly = 34,512 INR) 2. Benefit to Company u/s80jjaa 20,000 per month (x) 12months (x) 3years (x) 30% = 2,16,000 INR (Yearly = 72,000 INR) 3. Net benefit to the company u/s80jjaa Benefit to Company u/s80jjaa (-) Cost of Company for Provident Fund =2,16,000 1,03,536 = INR 1,12,464 over 3 years PER EMPLOYEE (Yearly = 37,488)

SURENDER KR. SINGHAL & CO

SURENDER KR. SINGHAL & CO PROPOSED TAX RATES FOR FINANCIAL YEAR 2016-17 A. Y. 2017-18 Income Tax Rates for Individuals, HUF Individuals, Hindu Undivided Families (HUF) and Artificial Jurisdictional Person: Net Income Range Income