Budget 2018: As jobs remain big headache, govt looks at tax tweaks for fix
Job creation is one of Modi government's biggest challenges, with the Opposition using what it calls the government's poor performance in this regard as a stick to beat the prime minister's economic policies with. With Budget 2018 less than a month away, and with employment generation reportedly being a key theme this year, one way the government could give job creation a boost is by tweaking taxation laws to provide companies an incentive for hiring. India already provides tax benefits to incentivise job creation by companies. However, according to a Times of India report, certain lacunae in the rules have kept many companies, particularly from the services sector, from reaping the benefits of such incentives. In view of this, according to the national daily, the government could tweak Section 80JJAA -- which sets out conditions under which a company can avail of deductions in respect of employment of new employees -- of the Income Tax (I-T) Act or introduce some new provision. ALSO READ: How policymakers can transform rural India as a new driver for job
creation Under the Section, 30 per cent of the additional employee cost is available to the concerned company as a deduction for three years, including the year of hiring the new employee(s). Only companies having a turnover of Rs 10 million or more are eligible to claim benefits for any new employment created by them. The devil, however, is in the details. Among the Section's various conditions under which a new worker is not considered an additional employee, two in particular seem to have negatively impacted job creation, according to the national daily. Firstly, if a person is employed for less than 240 days in the first year of his employment with the concerned company, then he or she is not considered an additional or new employee. Only the textile sector enjoys a lower threshold of 150 days in this regard. Secondly, an employee whose total emoluments are more than Rs 25,000 per month is also not considered an additional employee -- the salary of such an employee is excluded when computing additional employee cost, against which the benefit is available. What are the possible remedies? Experts have pointed out the difficulties such conditions pose. Speaking to the national daily, EY India partner & national tax leader Sudhir Kapadia explains that employees hired from August onwards are subject of "significant uncertainty" for the company as they cannot complete the stipulated 240 days in the first year of their employment. Therefore, Kapadia adds, companies have no incentive to hire after the month of July. However, Kapadia provides a remedy: "The condition of completion of 240 days by an employee should be tested in two consecutive years instead of only the first year. Thus, if the employee fulfils the condition cumulatively in the first two years of employment, the company should be allowed to claim the additional deduction from years two to four." Speaking to the national daily, P V Srinivasan, an industry veteran and practising chartered accountant, explains that the above-mentioned conditions pertaining to an employees' salary "largely disqualifies the service sector, including the information technology sector". It stands to reason that many new employees in such sectors are likely to be earning over Rs 25,000 per month, and as such, would not be counted as an additional employee when computing the company's additional employee cost. Ficci, for its part, has recommended that this limit should be increased to at least Rs 50,000 per month, the report added. Chipping in, Kapadia adds that the ceiling limit "does not address the normal increments over the next two years". Instead, according to him, "the limit of Rs 25,000 per month should apply only for the first year and be capped at Rs 50,000 in the next two years".
ARTICLE SOURCE- BUSINESS STANDARD.