Budget 2018: How PMRPY, tax deduction will incentivise job creation

Finance minister Arun Jaitley in his Budget speech indicated that creation of job opportunities and facilitating generation of employment has been at the core of their policy-making. Several labour reforms, including legislative changes, are being implemented for the creation of employment. In this process, the government had introduced schemes to incentivise employers. Below are the tax and provident fund related incentives.

Pradhan Mantri Rojgar Protsahan Yojana (PMRPY)

Under the existing scheme, the government of India pays the pension contribution of 8.33% of wages for all new employees under the Employees' Provident Funds (EPF) and Miscellaneous Provisions Act (PF Act). This is limited for the first three years of their employment, subject to the conditions specified in the scheme. Further, in case of textile, leather and footwear industry, the entire 12% of employer contributions would be paid by the government. Budget 2018 proposes to enhance the benefits under this scheme to encourage new employment across all sectors. Accordingly, the finance minister has now proposed that the employer contribution of 12% will be paid by the government for new employment in all sectors.

Deduction under the Income Tax Act under Section 80JJAA

An additional deduction of 30% of the emoluments paid to new employees who were employed for a minimum period of 240 days is allowed. This deduction is limited for a period of three years and subject to the conditions specified. The period of 240 days is relaxed to 150 days for the apparel industry. Budget 2018 proposes to extend the 150 days relaxation to footwear and leather industry as well.

Further, the provision has been relaxed to avail the benefit in the succeeding year if the employee does not meet the number of days criteria in the year of joining but meets the same in the succeeding year.

However, employers cannot simultaneously avail benefit under PMRPY and deduction under the Income Tax Act for the same employee. This means employer would need to either opt for PMRPY or the benefit under Income Tax Act. Thus, employers would need to evaluate the benefit under both the schemes and avail the one which is more beneficial to them.

Further, to incentivise employment of women in the formal sector and to enable higher take-home pay, the women employee contributions under the PF Act has been reduced from 12% to 8% for the first three years of employment. It has been clarified in the speech that there will not be any change in employer's contribution. This should additionally help organisations in attracting women employees and also promoting gender diversity at the workplace.

The above proposals clearly indicate that government is taking all measures to create new jobs and to facilitate generation of employment. The finance minister also mentioned that an independent study has shown that 70 lakh formal jobs would be created this year. Hope that the above measures would further help in generating more employment opportunities.

Kasturirangan is partner, Deloitte India
Ambati is senior manager with Deloitte Haskins and Sells LLP