Employees
Companies may get 30% tax exemption for additional hiring. Picture: Employees walk out of a building at the Indian headquarters of iGate in the southern Indian city of Bangalore, 4 February 2013.Reuters

The Narendra Modi government is reportedly contemplating a plan to offer 30 percent exemption in income tax for companies that create additional jobs.

To avail the benefit, the companies have to increase their headcount by 2 percent.

The proposal was one of the fiscal and monetary incentives to the employers suggested by a high-level panel of secretaries for inclusion in the upcoming budget, a senior government official told The Economic Times.

While the proposal covers all types of jobs, total emoluments will be taken into account in giving tax exemption. The other proposed incentives include 125 percent rebate on provident fund contributions for employers and offering easy, cheap credit through interest subvention.

"The government would formulate new schemes for new units linking it with employment and assistance of government," PM Modi had said in his Independence Day speech last year.

Currently, India has a total workforce of 480 million, with 6 percent of them employed in the formal sector and the remaining in the informal one. The country sees an addition of 12 million jobs every year.

However, only 50 percent of the population aged 15 years and above is employed in the country, showing a wide gap between those having a job and those trying to get employed, according to a data from Labour bureau.

"The labour ministry has proposed various fiscal and monetary interventions as part of the government's employment-generation strategy and this is likely to find its way in the budget considering that PM Modi had committed to incentivise employment generation in the country," the official said told the daily.

DK Pant of India Ratings said that tax exemption proposal could assist manufacturing companies to shift to labour-intensive sectors from capital-intensive ones.

"This could be one more incentive to manufacturers like so many other incentives but its success will depend on how well the policy is implemented on the ground," he said.

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