Section 80JJAA: Tax Deduction for Employment Generation 

If you’re running a business in India and actively hiring, the Income Tax Act has a generous relief to incentivize you. Section 80JJAA is designed to boost employment while easing your tax burden. Whether you’re a startup expanding your team or a long-standing company scaling operations, this provision could help you claim substantial tax savings—simply for hiring the talent required to help build your dream. 

In this blog, you’ll find everything you need to know about Section 80JJAA—eligibility, deduction amount, how to claim it, common pitfalls, and how it stacks up against other deductions. Let’s get right into it. 

What is Section 80JJAA of the Income Tax Act? 

Section 80JJAA provides an income tax deduction to businesses that create new employment opportunities. The idea is simple: encourage companies to hire more people by offering them tax relief. First introduced in the Finance Act of 2016, this section has since become an important tool for economic stimulation. 

The deduction allows eligible businesses to claim 30% of additional employee costs (salary paid to new employees) as a tax benefit, and not just for one, but for three consecutive years. 

This is over and above the standard salary expense deduction already allowed under the Income Tax Act. So essentially, you’re getting a double benefit for expanding your team. 

Who is Eligible to Claim 80JJAA Deduction? 

You can claim this deduction if: 

• You’re an assessee having income from business, and 

• You’re subject to a tax audit under Section 44AB of the Income Tax Act. 

Additionally, the deduction is available to: 

• Companies 

• Partnership firms 

• Limited Liability Partnerships (LLPs) 

• Sole proprietorships 

However, professionals (like doctors or lawyers) earning under “Income from Profession” are not eligible. You must also maintain regular books of accounts and get them audited to qualify. 

Important Conditions 

• The business must be subject to audit. 

• New employees must be added to the payroll in the financial year for which the deduction is claimed. 

• The company must not be formed by splitting up or reconstructing an existing business. 

• Outsourcing of jobs does not count; employees must be on your payroll. 

Conditions to Qualify as a ‘New Employee’ 

This is where many people get confused; not every new hire counts. To be considered a “new employee” under Section 80JJAA, the individual must: 

1. Be employed during the previous year and contribute to the workforce for at least 240 days (150 days for businesses in the manufacturing of garments, footwear, or leather goods). 

2. Receive a monthly emolument of less than ₹25,000. 

3. Participate in a Recognized Provident Fund (PF). 

4. Not be: 

1. A casual worker 

2. A contract employee 

3. A person for whom the government is paying the entire contribution under EPF 

The goal here is to incentivize long-term employment—not short-term hiring or temporary staffing. 

What is the Deduction Allowed Under 80JJAA? 

The core benefit is that 30% of the additional employee cost incurred in the course of business can be claimed as a deduction, and this is allowed for three consecutive assessment years. 

So, What is Additional Employee Cost? 

It refers to the total emoluments paid or payable to eligible new employees in the previous year. 

Key Highlights 

• The deduction is over and above regular salary expenses. 

• Applicable for 3 consecutive years, starting from the year in which employment is provided. 

• Applies only to new additions to the workforce, not replacements. 

How to Claim Section 80JJAA Deduction in ITR 

You can claim the 80JJAA deduction while filing your ITR-3 or ITR-5, depending on your business type. 

Step-by-Step Guide 

1. Ensure you’re audited under Section 44AB (Tax Audit). 

2. In your ITR form, go to the Schedule VI-A section. 

3. Look for Part C – Deductions in Respect of Other Income and select Section 80JJAA. 

4. Enter the eligible deduction amount (30% of the additional employee cost). 

5. Attach the following required documents: 

1. Audited financials 

2. Payroll records 

3. Details of new employees 

4. Provident fund records 

6. File the return before the due date to ensure the deduction is not disallowed. 

Example of Section 80JJAA Benefit 

Let’s say you’re a manufacturing company that hired 20 new workers in FY 2025–26 at ₹20,000 per month. 

• Annual salary per employee: ₹2.4 lakh 

• Total new employee cost: ₹2.4 lakh x 20 = ₹48 lakh 

• Deduction under Section 80JJAA: 30% of ₹48 lakh = ₹14.4 lakh per year 

• For 3 years: ₹14.4 lakh x 3 = ₹43.2 lakh 

That’s a huge benefit just for hiring and retaining your workforce. And yes, you still get to deduct these salaries as business expenses separately. 

Common Mistakes to Avoid While Claiming 80JJAA 

1. Hiring Short-Term Workers. Employees must work for at least 240 days (or 150 in some industries). Hiring interns or temp staff won’t qualify. 

2. Missing PF Registration. Only employees who are enrolled in a recognized provident fund are eligible. This is a must-have. 

3. Overestimating Deduction. The ₹25,000 monthly salary cap is strict. Even one rupee above, and the employee becomes ineligible. 

4. Claiming Deduction Without a Company Audit. If you’re not audited under Section 44AB, the claim will be rejected; no exceptions. 

5. Incorrect ITR Filing. Filing under the wrong ITR or forgetting to report in Schedule VI-A can lead to disallowance. 

Section 80JJAA vs Other Business Deductions 

Here’s how Section 80JJAA compares to other commonly used business-related tax benefits: 

So, while Section 80C helps individuals, 80JJAA is tailor-made for businesses that are growing their workforce. 

Latest Updates or Amendments in Section 80JJAA (FY 2025-26) 

As of FY 2025-26, there haven’t been major changes to Section 80JJAA in the Union Budget. However, 

• The threshold salary (₹25,000/month) is under review and may be revised in the future to keep up with inflation. 

• More sectors may be allowed the 150-day minimum working days condition, beyond just garments and footwear. 

• E-filing validations are becoming stricter. Ensure that your information in the EPFO and PAN databases matches to avoid rejection. 

Keep an eye on notifications from the Central Board of Direct Taxes (CBDT) or your CA for any real-time updates. 

Conclusion: Boost Jobs, Cut Taxes with 80JJAA 

Section 80JJAA isn’t just another line in the Income Tax Act—it’s a strategic incentive that aligns business growth with national goals. By encouraging job creation, the government rewards you for expanding your team. And in return, you lower your tax burden by lakhs over multiple years. 

But here’s a fresh thought: beyond just tax savings, using 80JJAA strategically could help attract investor confidence. When your company actively contributes to employment generation—and manages finances smartly—you’re not just tax-efficient; you’re future-ready. 

So, the next time you plan to expand, hire smart and leverage the benefits under Section 80JJAA. After all, you’re not only building your dream; you’re also building a better tomorrow for the country. 

FAQs 

What is Section 80JJAA? 

Section 80JJAA allows businesses under tax audit to claim a 30% deduction on the cost of hiring new employees for three consecutive years. It promotes employment generation and reduces tax liability. 

Who is eligible to claim the 80JJAA deduction? 

Businesses with audited accounts under Section 44AB can claim it, provided they hire new employees meeting criteria like PF registration and minimum employment duration. 

What is the 240-day and 150-day rule under 80JJAA? 

New employees must be employed for at least 240 days in the year. For apparel, footwear, and leather sectors, the requirement is reduced to 150 days. 

Can professionals claim a deduction under Section 80JJAA? 

No, professionals earning under “Income from Profession” aren’t eligible. The deduction applies only to businesses assessed under “Profits and Gains from Business or Profession.” 

Is there a salary limit for employees under 80JJAA? 

Yes, the new employee’s monthly emoluments must be less than ₹25,000. Anyone earning more than this threshold isn’t counted as an eligible employee under this section.