1. Background

To promote employment generation, the tax framework provides a deduction in respect of additional employee cost incurred by eligible businesses. Also, to ensure that deduction under section 146 are claimed correctly and by eligible taxpayers, Income-tax Rules, 2026 prescribe furnishing of a CA-certified report in Form No. 34.

2. Applicability

Applicable to business entities claiming deduction for additional employee cost like: company, firm, any other business entity etc

3. Deduction of Employee Cost

• As per sec. 146, deduction of 30% of additional employee cost incurred shall be allowed to eligible business entity subject to certain conditions as specified under the Act.
• Deduction shall be allowed for 3 consecutive tax years starting from the year in which employment provided.

4. Conditions for Deduction

Deduction shall be restricted if such business is formed as a result of

• splitting/reconstruction of current business or
• acquisition by way of transfer or
• report in Form-34 is not submitted.

5. Computational & Compliance requirements for claiming deduction

• • Identification of additional employees
  • Calculation of additional employee cost(i.e.

1. 1. 1. Total emoluments paid/payable to additional employees or
      2. Total emoluments paid payable to the employees if it’s a 1^st year of the business

• Verification of eligibility conditions as per section 146
• Furnishing Report in Form No. 34

6. Filing Timeline

Assessee is liable to furnish Report in Form-34, duly signed by a CA, alongwith the Income Tax Return.