There’s a way government can prod Zomato, Swiggy, Uber and Ola to increase salaries of delivery partners and drivers

• Section 80JJAA of the Income Tax Act gives deduction for three years to employers for hiring new people.
• The current limit of this provision is ₹300,000 a year that effectively means that the compensation of these people should be less than ₹25,000.
• If the limit is increased, it could help in boosting the salaries of and the number of jobs for gig workers.

One of the major concerns raised by the gig workers — such as delivery partners, drivers and more — who work for companies like Zomato, Swiggy, BigBasket and Blinkit (Grofers), is the lack of decent compensation. But what if we were to tell you that if an existing provision of the Income Tax Act is clarified and amended, it could raise salaries for the gig workers.

Under Section 80JJAA provision of the Indian Income Tax Act, companies can get a tax deduction for hiring new people. If a company’s workforce increased by 50, the salary paid to these employees would make the company eligible for an additional deduction of 30% for the next three financial years, Hemal Zobalia, Partner at Deloitte Haskins & Sells LLP explains.

For example, if the company is paying ₹1000 annually to each of these 50 employees, it will get ₹300 as tax deduction for each of them for each of the next three years. Essentially, 90% of the first year’s salary, for each of the new employees, will be deducted from the company’s taxable profit.

The goal of this provision is to create more permanent employment for those who are “low-skilled”, according to Jimit Devani, a partner at Deloitte Haskins & Sells. The provision is applicable for employees whose salaries are ₹25,000 per month or less.Increasing the salary limit to ₹35,000-₹40,000 may push more companies to hire permanent employees instead of contractual ones. Meanwhile, Zobalia is of the belief that this would also help in further increasing their payout and salaries.

But there is a bigger challenge here. This is not a widely availed incentive by the companies for several reasons.

First, companies prefer to hire people on contract and keep them on a third party’s payroll. Such companies cannot avail tax benefit under the 88JJAA provision. Bringing people on to the payroll makes them eligible for other benefits like pension, insurance, and severance to name a few, Devani said.

The third parties, however, do avail these tax benefits for employees that have been on their payroll for at least eight months, Devani added.

The second issue with this provision is that the benefit is available only on the net addition of employees. Say, a company has a total of 10 employees. Five of them quit the company in a year, and six more are hired in the same year. While the company has six new employees, the net addition to the workforce is only one.

And, so, the tax rebate is available only for one additional employee, and not all six.

Improving this provision under the income tax law may go a long way in creating sustainable employment for people with less-valued skills, across a range of industries including the gig economy of which the likes of Zomato, Swiggy, Amazon and Flipkart are part of.

The current state of salaries in the gig economy
As per Fairwork India report of 2021, most newage digital platforms — including Zomato, Swiggy, Uber, Dunzo, PharmEasy and Ola — do not offer fair wages to the contractual workers associated with them.

Even though companies like Flipkart, Urban Company and BigBasket pay higher and better, it still may not be enough to make local living wage after costs, the report adds.
Note: Urban Company’s average salary excludes cost
Source: Urban Company’s latest report, Apna.co

It is important to note that there has been a further reduction in the payout for delivery executives due to decrease in rate cards and incentives, along with increased input costs of petrol and platform commissions. This has made matters worse for the Indian gig workers like delivery partners and drivers, the Fairwork report adds. Fairwork rates digital platforms on their treatment of gig workers who work for them.

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