Budget: Tax experts seek clarity on employment deductions available to biz

Ahead of Budget FY27, tax experts seek clarity on Section 80JJAA as ambiguities over employee cost deductions trigger scrutiny and risk disputes for companies

Ahead of the FY27 Budget, tax experts have urged the Centre to clarify several ambiguities in Section 80JJAA of the Income Tax Act which provides 30 per cent deduction on additional employee costs for three consecutive years.

 

Experts say the government has tightened scrutiny on such deductions owing to persistent interpretational issues. This is virtually the only tax incentive available to companies under the concessional corporate tax regime introduced in 2019.

 

Originally introduced in 1998 to boost manufacturing employment and significantly broadened in 2016 and subsequent years, the deduction under Section 80JJAA is available to businesses subject to tax audit.

 

The benefit applies only to new regular employees who work at least 240 days in the year (or 150 days in apparel, footwear or leather sectors), earn monthly emoluments not exceeding ₹25,000, and are paid through banking channels.

 

“If a company fails to claim the deduction initially, due to non-filing of forms or due to oversight, question arises whether it can still avail the remaining benefit in the next two years. The law currently offers no clear guidance,” said Richa Sawhney, partner at Grant Thornton Bharat.

 

Another issue centres on the ₹25,000 monthly emoluments cap. The section mandates that deduction shall not be permissible for an employee whose emoluments are more than ₹25,000 per month.

 

Sawhney said there could be instances, where the emoluments paid to an employee exceeds ₹25,000 in a particular month, say on account of allowance/bonus, but the overall annual cost of such employee does not exceed ₹3 lakh.

 

“Therefore the issue is whether the ceiling limit of ₹25,000 should be evaluated strictly on a monthly basis, or it may be looked at on an annualised basis, that is, ₹3 lakh,” she added.

 

The finance ministry did not respond to emailed queries on the issue till the time of going to the press.

 

Raising additional concerns, Chetan Daga, partner with AdvantEdge Consulting, said clarity is also needed on how the quantum of deduction should be computed across the three-year period.

 

“The section appears to tilt towards calculating the deduction based on the salary paid in the first year of employment, but the language is not explicit. There is uncertainty on whether the deduction should remain constant or be recalculated separately for each year,” he added.

 

Daga also flagged implementation challenges around compliance and assessments. “While the deduction is required to be certified by a chartered accountant in Form 10DA, in practice tax authorities often do not rely on this certification. Under the faceless assessment regime, explaining and substantiating voluminous employee-level data becomes particularly difficult for taxpayers,” he said.

 

According to Hitesh Sawhney, partner with PwC, ambiguity persists on whether the benefit applies only to the net addition to the workforce or to all eligible new hires, including replacements.

 

“A purposive reading suggests the intent is to reward employers who grow their workforce by allowing the deduction for all qualifying new hires, not merely the net increase. In the absence of explicit clarification, this interpretation remains vulnerable to litigation. Timely and definitive guidance from the government would promote consistency, reduce disputes and enhance the scheme’s effectiveness in driving genuine job creation,” PwC’s Sawhney said.