Section 80JJAA: The 30% Deduction on Additional Employee Cost (now Section 146)

Most tax incentives ask you to spend on plant, research or a special zone. Section 80JJAA asks only that you hire people and pay them properly through the banking system. For a growing Delhi NCR business that is adding staff anyway, it is one of the most overlooked ways to cut the tax bill — and one that a surprising number of eligible businesses never claim, usually because no one filed the required report in time.

Legal reference — and why the section number is changing

The deduction sits in Section 80JJAA of the Income-tax Act, 1961, read with Rule 19AB and reported in Form 10DA. The current wording dates from the Finance Act, 2016, which from AY 2017-18 opened the benefit up to almost every tax-audited business.

The important 2026 update: the Income-tax Act, 2025 has replaced the 1961 Act with effect from 1 April 2026. The 80JJAA benefit is carried forward, in substance unchanged, as Section 146 of the Income-tax Act, 2025 — same 30% deduction, same three-year run, same core conditions. So depending on which assessment year you are dealing with you may see it cited either as "Section 80JJAA" (up to AY 2026-27, i.e. FY 2025-26) or as "Section 146" going forward. We flag both here so nothing you file looks out of date. For the wider renumbering, see our guide to the old vs new section mapping.

Who can claim it — the eligible assessee

This is the part most people get wrong, because the old pre-2016 rule was far narrower. As the section stands today, the eligible assessee is:

• Any assessee — a company, LLP, partnership firm, individual or HUF —
• carrying on a business (not a profession),
• whose accounts are required to be audited under Section 44AB (tax audit), and
• who obtains and files the accountant's report in Form 10DA.

It is no longer restricted to Indian companies or to manufacturing. A trading business, a service business, an IT company, a restaurant chain — all can claim, provided they are under tax audit and add eligible employees. What is excluded is income from a profession, and any business that is not subject to tax audit. If you are unsure whether tax audit applies to you, see our note on tax audit applicability.

The benefit — 30% for three years

You get to deduct an additional 30% of the additional employee cost incurred during the year. Crucially, this deduction is available not just in the year of hiring but for three consecutive assessment years, beginning with the year in which the employment is provided.

Because the employees' salary is already fully allowed as a normal business expense under Section 37, the 80JJAA deduction is over and above that. Put together, across the three years you get an extra 90% (30% × 3) of the first year's qualifying wage bill as a deduction. For a business paying tax at 25%–30%, that is real cash saved for simply doing what a growing firm does anyway — adding staff on the books.

The conditions — where claims succeed or fail

The section is generous but strict. Miss any of these and the claim collapses.

1. Genuine expansion, not a rearrangement

• The business must not be formed by splitting up or reconstruction of an existing business (except a business revived under Section 33B).
• The business must not be acquired by transfer from another person or as a result of a business reorganisation.

The intent is to reward new jobs, not the same jobs moved onto a new letterhead.

2. The Form 10DA report — non-negotiable and time-bound

You must furnish a report from a Chartered Accountant in Form 10DA, certifying the additional employee cost and that the conditions are met, on or before the due date for filing the return of income. This is the single most common reason genuine claims are lost — the report is not filed, or is filed late. Treat it as part of the return, not an afterthought.

3. Payment through banking channels

For an existing business the additional employee cost is treated as nil if the emoluments are paid otherwise than by account payee cheque, account payee bank draft, ECS or a notified electronic mode. Cash wages simply do not count. Clean payroll run through the bank is a precondition, not just good practice — our bookkeeping and payroll support exists partly to protect exactly this kind of claim.

"Additional employee cost" — how it is measured

Additional employee cost means the total emoluments paid or payable to the additional employees employed during the previous year. Two special rules matter:

• New business (first year): the emoluments of all qualifying employees hired in the first previous year are the additional employee cost. Everyone is "additional" because there was no prior workforce.
• Existing business: the additional employee cost is nil if (a) there is no increase in the number of employees compared with the total number as on the last day of the preceding year, or (b) the emoluments are paid in cash rather than through the banking channels above.

Who counts as an "additional employee"

Not every new joiner qualifies. An additional employee is one whose employment increases the total headcount as on the last day of the preceding year — but the following are excluded:

• an employee whose total emoluments are more than Rs. 25,000 per month;
• an employee employed for fewer than 240 days during the year — the threshold is 150 days for businesses manufacturing apparel, footwear or leather products;
• an employee who does not participate in a recognised provident fund;
• an employee for whom the entire contribution under the Employees' Pension Scheme is paid by the Government (e.g. under a scheme like PMRPY).

Helpful proviso: if an employee is hired part-way through the year and works fewer than the minimum days in the first year, but then completes the minimum days in the immediately following year, that employee is deemed employed in the succeeding year — so the cost is not lost, it simply shifts to the next year. This routinely rescues employees hired in the second half of a financial year.

What "emoluments" include (and exclude)

Emoluments means any sum paid or payable to an employee for their employment — but it excludes:

• the employer's contribution to any pension fund or provident fund; and
• any lump-sum payment on termination, superannuation or voluntary retirement — such as gratuity, leave encashment, commutation of pension, severance or VRS ex-gratia.

So the Rs. 25,000 test is applied on the regular pay, not inflated or deflated by these one-off and employer-contribution items.

A simple illustration

Suppose a Delhi services company under tax audit hires 10 new employees in FY 2025-26, each paid Rs. 20,000 a month through the bank, each working the full year and enrolled in PF. Their annual emoluments are 10 × Rs. 20,000 × 12 = Rs. 24,00,000 — and all 10 qualify.

• The Rs. 24 lakh salary is already deductible as a business expense.
• 80JJAA extra deduction: 30% of Rs. 24,00,000 = Rs. 7,20,000 in year 1.
• The same Rs. 7,20,000 is deductible again in year 2 and year 3 — total extra deduction Rs. 21,60,000 over three years.
• At a 25% tax rate, that is roughly Rs. 5.4 lakh of tax saved across the three years, purely for hiring on the books and filing Form 10DA on time.

Figures are illustrative; the actual deduction depends on how many employees meet every condition each year and on continuity of employment.

The quiet advantage: 80JJAA survives the new tax regime

Here is the planning point most summaries miss. When you move to the new personal tax regime under Section 115BAC, you give up almost every deduction — but 80JJAA is one of the handful expressly retained. Likewise, a company that opts for the concessional corporate rates under Section 115BAA or 115BAB loses most incentive deductions, yet 80JJAA remains available. In other words, this is one of the few Chapter VI-A benefits you do not forfeit by choosing the lower-rate regime — which makes it more valuable now, not less. If you are weighing regimes, read our new vs old tax regime comparison, and note how it interacts with a startup's 80-IAC tax holiday.

How to claim — step by step

This article is general information, not tax advice. Eligibility and conditions are governed by Section 80JJAA / Section 146 of the Income-tax Act and the related Rules, and can change.

How Startup Advisory Can Help

Startup Advisory is a CA-led firm in Saket, New Delhi that helps businesses across Delhi NCR actually capture the Section 80JJAA / 146 deduction — and, just as importantly, not lose it to a missed Form 10DA or a cash-payroll slip-up:

• ITR and tax advisory — identifying every qualifying employee and claiming the 30% deduction across all three years.
• Preparation and timely filing of the Form 10DA accountant's report by a named CA.
• Payroll and bookkeeping set up so wages run through the bank and PF, protecting the claim.
• Regime planning — making sure you keep 80JJAA when you move to the new tax regime or the concessional corporate rates.

Call 9311972982 or book a free consultation to check whether your business can claim 80JJAA this year.