Section 146 — Deduction in respect of additional employee cost

(1) Subject to the conditions specified in sub-sections (2) and (3), if the gross
total income of an assessee, to whom section 63 applies, includes any
profits and gains derived from business, a deduction of an amount equal to 30%
of additional employee cost incurred in the course of such business in the tax year
shall be allowed.
(2) The deduction referred to in sub-section (1) shall be allowed for three consec -
utive tax years, beginning from the tax year in which the employment is provided.
(3) The deduction under sub-section (1) shall not be allowed, if—
( a) the business is formed by splitting up, or the reconstruction, of an existing
business; or
( b) the business is acquired by the assessee through transfer from any other
person or as a result of any business reorganisation; or
( c) the assessee does not furnish the report of an accountant, before the
specified date as referred to in section 63, giving the particulars in the
report, as may be prescribed.
(4) The condition referred to in sub-section (3)( a) shall not apply in respect of an
undertaking which is formed as a result of the re-establishment, reconstruction or
revival by the assessee of the business of any such undertaking as is referred to in
section 140(4), in the circumstances and within the period specified in said section.
(5) For the purposes of this section,—
( a) “additional employee cost” means—
( i) the total emoluments paid or payable to additional employees
employed during the tax year; or
( ii) emoluments paid or payable to employees employed during the tax
year, where that year is the first year of a new business,
and it shall be nil in the case of an existing business, if—
( A) there is no increase in the number of employees from the total
number employed as on the last day of the preceding tax year; or
( B) emoluments are paid otherwise than by an account payee cheque
or account payee bank draft or by use of electronic clearing system
through a bank account or through such other electronic mode, as
may be prescribed;
( b) “additional employee” means an employee who has been employed dur-
ing the tax year and whose employment increases the total number of
employees employed by the employer as on the last day of the preceding
tax year, but does not include any employee—
( i) whose total emoluments exceed ` 25000 per month;
( ii) for whom the Government pays the entire contribution under the
Employees’ Pension Scheme notified as per the provisions of the
Employees’ Provident Funds and Miscellaneous Provisions Act,
1952 (19 of 1952);
( iii) employed for less than one hundred and fifty days in case of an
assessee who is engaged in the business of manufacturing of
apparel or footwear or leather products, except where such
employee is employed for said number of days in the immediately
succeeding tax year, he shall be deemed as an additional employee
of the succeeding tax year and the provisions of this section shall
apply accordingly;
( iv) employed for less than two hundred and forty days during the tax
year in case of any other assessee, except where such employee is
employed for said number of days in the immediately succeeding
tax year, he shall be deemed as an additional employee of the
succeeding tax year and the provisions of this section shall apply
accordingly; and
( v) who does not participate in a recognised provident fund;
( c) “emoluments” means any sum paid or payable to an employee in lieu of
his employment, by whatever name called, but does not include—
( i) employer contributions paid or payable to any pension or provident
fund or any other fund for the benefit of the employee as mandated
by any law; and
( ii) lump sum payments paid or payable to an employee at the time
of termination of his service, superannuation, or voluntary retire-
ment, such as gratuity, severance pay, leave encashment, voluntary
retrenchment benefits, commutation of pension and the like.