Section 80-IAC – Startup Tax Holiday under IncomeTax Act.
Section 80-IAC of the Income Tax Act provides a tax holiday to eligible startups in India, offering a 100% deduction on profits for three consecutive years.
The provision was introduced as part of the Startup India initiative to reduce the tax burden on new businesses during their formative years, thereby encouraging innovation and promoting growth.
This section allows eligible startups to claim 100% deduction of profits for 3 consecutive assessment years out of 10 years since incorporation.
✅ Eligibility Criteria:
1. Entity Type:
Must be a Private Limited Company or Limited Liability Partnership (LLP).
Registered in India.
2. Incorporation Period:
Incorporated between 01st April 2016 and 31st March 2025.
3. Turnover Limit:
Annual turnover less than ₹100 crores in any of the previous years relevant to the deduction period.
4. Startup Recognition:
Must be recognized by DPIIT (Department for Promotion of Industry and Internal Trade) as an eligible startup.
5. Innovation Requirement:
The entity must be working towards:
Innovation, development, improvement of products, processes, or services, or
A scalable business model with high potential of employment generation or wealth creation.
6. Not Formed by Splitting / Reconstruction
Business should not be formed by splitting up or reconstruction of an existing business.
It should not be formed by transfer of previously used plant or machinery (with some exceptions).
⚡ Tax Benefit:
100% tax exemption on profits for 3 consecutive years (chosen out of first 10 years from incorporation).
Deduction available only if conditions above are satisfied.
How to apply:
The application process involves applying for Startup India recognition on the official portal, followed by applying for the 80-IAC tax exemption through the same portal.
The application is then evaluated by an Inter-Ministerial Board (IMB) which, upon approval, issues a certificate. The startup can subsequently claim the deduction in its Income Tax Returns for the chosen years.
Important considerations
The tax holiday only applies to profit from the eligible business, not other income sources. Startups can strategically claim the exemption during profitable years within the 10-year window.
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