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Tax Benefits for generating employment – The relaxation story continues!

February 1, 2018 1495 Views
Divyang Thakker
Vice President – Direct Taxes, Reliance Communications Limited
Alok Pareek
CA, CS, LLB

A. Background

Improving employment has always been at fore in agendas of all the governments. Various schemes have been launched since independence to boost employment in urban and rural sector. Initiatives have also been taken vide provisions in the Income Tax Law which aid in achieving this holy goal, by providing tax benefits to undertakings which increase employment e.g locational tax benefits have increased industrialisation of many geographical locations such the famous pharmacy plants in Himachal Pradesh.

B. The Provision as of now – Section 80JJA

Of the slue of changes made, Finance Act, 1998 inserted a new section 80JJAA on deduction in respect of employment of new workmen, with a view to encourage the employers to further generate more employment. Till last 2 years, the benefit of deduction of 30% wages paid to new workman was allowed only to manufacturing industry and also limit of minimum number of employees was there. However, Finance Act, 2016 removed the condition of the provision being applicable only to manufacturing assesses as well as the removed the condition of minimum number of employees in an organisation as well as condition of employing minimum number of new employees has been removed.

However, there was a condition of minimum number of days of employment of the new employee in the organisation. Thus, a new employee needed to be employed with the organisation for at least 240 days in the relevant year. However, vide the Finance Act, 2016, the minimum period of employment of 240 days was relaxed to 150 days in the case of apparel industry.

C. Proposed Relaxation in Budget

This budget seeks to extend benefit by rationalizing the provisions as below:

  ♦  Like the relaxed condition of reduced period of minimum days of employment of 150 days for apparel industry, the budget proposes to relax the same for footwear and leather industry by bringing down the minimum period of employment to 150 days in the year.

  ♦  As concerns the issue that an organisation could not take benefit of deduction in case a new employee was employed for less than 240 days. This budget has proposed to rationalise the benefit of 30% deduction of salary paid to the new employee, who is employed for less than the minimum period during the first year but continues to remain employed for 240 days in subsequent year.

The above, proposed amendments are welcome amendments with a view to boost employment growth. However, the FM could have considered relaxation of 150 days of minimum period of employment for a wider sector of industries. Anyways, something is better than nothing!

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