Constitution of India - Where more than one interpretation can be given to Court's order, then benefit has to be given to party against whom contempt is alleged: HC (See 'Legal Desk') SEBI Act - Merely attending board meetings cannot lead to conclusion that appellant is involved in day to day affairs of Company: SAT (See 'Legal Desk') Competition Act - Grievances of Informants like payment of maintenance and electricity charges is in nature of contractual issue and disputes not having any Competition concern: CCI (See 'Legal Desk') India attends G20 Working Group Meeting at Brasilia (See 'Corp Brief') SEBI ICDR Regulations, 2018 - By not locking entire pre-preferential allotment shareholding of two allottees Noticee violated SEBI ICDR Regulations : SEBI (See 'Legal Desk') Arbitration Act - Serving officer of respondent shall act as arbitrator is invalid stipulation which makes it incumbent on Court to appoint independent sole arbitrator to adjudicate disputes : HC (See 'Legal Desk') SEBI Act - Appellant is misleading its investors that it is registered with SEBI as investment advisor and played fraud in violation of IA Regulations : SAT (See 'Legal Desk') CCI okays subscription to CCPS B of API Holdings by MEMG LLP and 360 ONE (See 'Corp Brief') PMLA - Court will not cancel interim bail granted to respondent as interim bail is about to expire within short period of time : HC (See 'Legal Desk') CCI approves 100% acquisition of Lanco Amarkantak Power by Adani (See 'Corp Brief') CGST Act - Case does not fall under ambit of Anti-Profiteering provisions of CGST Act : CCI (See 'Legal Desk') BRO connects strategic Nimmu-Padam-Darcha road in Ladakh (See 'Corp Brief') Arbitration Act - Any party having failed to make substantive claim in arbitral proceedings, cannot seek recovery by way of interim mandatory injunction u/s 17 : HC (See 'Legal Desk') SEBI Act - Trading pattern of appellants with other noticees indicate that there is meeting of mind between appellants and other noticees : SAT (See 'Legal Desk') SARFAESI Act - Respondent shall not take any coercive steps against Petitioner prior to 15th March, 2024 provided Petitioners file appeal before DRAT on or before March 01, 2024 : HC (See 'Legal Desk') Guj Govt sets up Telecom Facilitation Centre to support stakeholders (See 'Corp Brief') SEBI Act - SEBI shall not initiate any enforcement action against Applicant for SAST violations provided representation made in settlement proceedings are subsequently not found untrue : SEBI (See 'Legal Desk') India, Bhutan ink MoUs on clean energy, agriculture & tourism (See 'Corp Brief') PMLA - Surgery of knee cannot be categorized as 'life-threatening situation' and surgery which is to be undergone by applicant is not of such nature which necessitates applicant's release on interim bail only : HC (See 'Legal Desk') NCC, NPCIL ink MoU to raise awareness on peaceful use of nuclear power (See 'Corp Brief') SEBI - Any violation committed by Company which is fraudulent in nature has to be attributed to individual acting as Director at relevant point of time : SAT (See 'Legal Desk') Golden Jubilee Celebration of KVKs held in Puducherry (See 'Corp Brief') PMLA - Court declined to grant bail to Satyendar Jain in money laundering case and also cancelled interim bail granted as there are sufficient material collected by ED to show that he is prima facie guilty of alleged offences : SC (See 'Legal Desk') 42nd IPHE Steering Committee to be hosted by EU (See 'Corp Brief') IBC - Application filed u/s 7 of code can be admitted as debt and default has been established : NCLT (See 'Legal Desk')

Tax Incentive for Employment Generation

Published: May 09, 2018

By Sunil Kukreja, Nikita Saxena

- As of today, creating employment opportunities is one of the key priorities of the government.In order to encourage employers to generate more and more employment opportunities, the government introduced an incentive in the form of a weighted deduction. Initially, the provisions of this incentive restricted benefits to few assessees, had many conditions attached thereto and the industry faced certain practical issues in claiming deduction, as a result of which, the incentive did not meet the requisite objective.

- To widen the coverage, since past couple of years, the Hon'ble Finance Minister has been rationalizing provisions under the Income Tax Act, 1961 (‘the Act') to incentivize employment generation. As per these provisions, benefit in the form of weighted deduction (subject to certain conditions) is available with respect to salary cost incurred on new employees.

- Prior to amendment made by the Finance Act, 2016, section 80JJAA of the Act, provided for a deduction of 30% of additional wages paid to new regular workmen in a factory for current year and two subsequent years (i.e. 3 consecutive years). The provisions applied to the business of manufacture of goods in a factory where 'workmen' were employed for not less than three hundred days in a previous year. Benefits were allowed only if there was an increase of at least 10% in total number of workmen employed on the last day of the preceding year.

- As per amendment made in Finance Act, 2016, the benefit of employment generation under the provisions of Section 80JJAA of the Act was extended to all assessees and threshold limit of at least10% increase in total number of workmen employed was done away with, subject to fulfillment of certain conditions which inter-alia includes:

- New employee is employed for = 240 days (150 days for manufacturing sector) in the previous year;

- New employee's total emoluments = Rs.25,000/- per month;

- Net increase in the total number of the employees at the end of the year;

- Emoluments should be paid by an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account.

- Finance Act, 2018 has further rationalized the provisions. As per the amendment:

- the benefit of 30% deduction has been rationalized by allowing the same for a new employee who is employed for less than the minimum period (i.e. 240 days) during the first year but continues to remain employed for the minimum period in the subsequent year;

- the concession of minimum employment period for 150 days has been extended to footwear and leather industry.

Thus, the above amendment, has addressed the practical issues faced by the industry for claiming deduction in respect of employees who have not completed 240 days in the year of employment, but have completed 240 days in the subsequent year. The amendment states that, as the minimum period employment condition was not satisfied in year of employment, the claim for the deduction for the employee cost shall be availed in Year 2 in which employees complete the 240 days condition. Further, the amount of deduction that may be claimed will be towards the employee cost, which is incurred in Year 2.

The above amendment is effective in computing the income for FY 2018-19 onwards. In this regard, it is to be noted, deduction will also be granted for employees employed in FY 2017-18 who satisfy the minimum period employment condition in FY 2018-19.

- However, there are still certain aspects of the provisions which are open to different interpretations that need clarification. For instance:

- What shall be the impact if any new employee leaves employment after completing 240 days? Whether deduction will be available in 2nd or 3rd year?

On plain reading of the provision of the Act, it states that condition of 240 days is to be seen in the year of employment. However, in view of the varying interpretations based on certain judical precedents, it could result in litigation.

- For claiming deduction for current and two subsequent years, whether employee cost should be determined individually for each of those 3 years or whether year of employment be taken as base?

If the year of employment is taken as the base for computing 240 days condition, then harmonious construction of the provisions needs to be adopted even for determing the amount of deduction by taking into account year of employment as base for each of the 3 years. However, in view of the varying interpretation based on certain judical precedents, alternative view may be taken which could result in litigation.

- Where the emolument is increased in the subsequent year, in such cases, whether the benefit will be available?

In situations, where the total emolument payable to an additional employee is below Rs.25,000/- per month in first year, but increases above Rs.25,000/- per month in subsequent years, in such circumstance, it may be contended that such employee may qualify as additional employee. This is because the section puts a condition only for a limited purpose, to test whether in the first year total emoluments payable is below Rs. 25,000/- per month. Once the employee is qualified as an additional employee, the deduction may be claimed in current year and two subsequent years in accordance with provision of the section. However, tax authorities may take alternative view.

In a nutshell, the amendment made by Finance Act, 2018 is a welcome move as it provides much needed relaxation for availing deduction with regard to year of employment as discussed above. However, it is hoped that the government would further provide clarifications on the unresolved issues to make the provision free from ambiguity and to reduce litigation. This would help the government achieve its object of extending the benefit of tax incentives to the taxpayers at large for encouraging employment generation.

[Sunil Kukreja is Manager and Nikita Saxena is Assistant Manager, Deloitte Haskins and Sells LLP. The views expressed are strictly personal.]

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