Deduction in respect of employment of new workmen [Section 80JJAA] :
(i) Section 80JJAA provides that the deduction thereunder shall be available to an assessee deriving profits from manufacture of goods in its factory.
(ii) Where the gross total income of such an assessee includes any profits and gains derived from the manufacture of goods in a factory, it would be allowed a deduction of an amount equal to 30% of additional wages paid to the new regular workmen employed by the assessee in such factory, in the previous year, for three assessment years including the assessment year relevant to the previous year in which such employment is provided.
(iii) However, the deduction shall not be available if the factory is acquired by the assessee by way of transfer from any other person or as a result of any business reorganisation.
(iv) The following conditions have to be fulfilled in order to be eligible for the deduction under this section:
(1) The assessee‘s gross total income should include profits and gains from manufacture of goods in a factory.
(2) The factory should not be acquired by the assessee by way of transfer from any other person or as a result of any business reorganisation.
(3) The assessee should furnish along with the return of income a report of a chartered accountant in the prescribed form giving the prescribed particulars.
(4) In case of a new factory, in the first previous year, it employs more than 50 regular workmen. Additional wages would mean the wages paid to new regular workmen in excess of 50 workmen employed during the previous year.
(5) In the case of an existing factory, the number of regular workmen employed during the relevant previous year should be equal to at least 110% of the regular workmen employed in such factory as on the last day of the preceding year. If not, the additional wages would be Nil.
(v) “Regular Workmen” does not include –
(1) a casual workman; or
(2) a workman employed through contract labour; or
(3) any other workman employed for a period of less than 300 days during the previous year.
Illustration
Mr. A has commenced the operations of manufacture of goods in a factory on 1.4.2015. He employed 125 new workmen during the P.Y.2015-16, which included –
(i) 15 casual workmen;
(ii) 15 workmen employed through contract labour;
(iii) 25 regular workmen employed on 1.4.2015;
(iv) 55 regular workmen employed on 1.5.2015; and
(v) 15 regular workmen employed on 1.7.2015
Compute the deduction, if any, available to Mr.A for A.Y.2016-17, if wages@ Rs 5,000 per month is paid to each workman and the profits and gains derived from manufacture of goods in the factory for the A.Y.2016-17 is Rs 4.75 lakhs.
Solution
Mr. A is eligible for deduction under section 80JJAA since his gross total income includes profits and gains derived from the manufacture of goods in a factory and he has employed more than 50 new regular workmen in his factory.
Additional wages = Rs 5,000 × 30 [See Working Note below] = Rs 1,50,000
Deduction under section 80JJAA = 30% of Rs 1,50,000 = Rs 45,000.
Working Note:
Number of new regular workmen
| Particulars | No. of workmen | |
| Total number of workmen employed during the year | 125 | |
| Less: Casual workmen employed during the year | 15 | |
| Workmen employed through contract labour | 15 | |
| Workmen employed for a period of less than 300 days during the P.Y.2015-16 (workmen employed on 1.7.2015) | 15 | 45 |
| Total number of new regular workmen | 80 | |
| Number of new regular workmen in excess of 50 = 80 – 50 | 30 | |