Section 80-IAC of the Income-tax Act, 1961 was brought into effect from 1 April 2017
with the objective of granting tax benefits to eligible startups in India. Under this
provision, recognised Indian startups are permitted to claim a 100% deduction on their
profits for any three consecutive years. This benefit is available to recognised
Private Limited Companies and LLPs that are incorporated on or after 1 April 2016
and before 31 March 2030.
What is Section 80-IAC?
Section 80-IAC of the Income-tax Act, 1961 was introduced with effect from 1 April 2017
to extend tax relief to eligible startups operating in India. Under this section,
recognised startups are entitled to claim a 100% tax deduction on their profits
for a block of three consecutive years. The provision is applicable to recognised
Private Limited Companies and LLPs that are incorporated on or after 1 April 2016
but before 31 March 2030.
Eligible startups can claim this deduction on profits and gains derived from an
eligible business that is involved in innovation, development, or improvement of
products or services, or follows a scalable business model with strong potential
for job creation or wealth generation.
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Section 80-IAC is designed to support startups in their early years by offering significant tax benefits.
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It was introduced to promote innovation, encourage research and development, and build a vibrant startup ecosystem in India.
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The section extends tax incentives to domestic entities, thereby encouraging investments in startups and other qualifying ventures.
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It also contributes to curbing tax evasion and, in turn, motivates young entrepreneurs to operate as compliant taxpayers.
Section 80-IAC Tax Exemption Eligibility Criteria
The assessee must be an LLP or a company engaged in an eligible business. An “eligible business” refers to a business carried on by an eligible startup that focuses on innovation, development, or improvement of products, processes or services, or that operates on a scalable model with significant potential for employment generation or wealth creation.
Businesses involved in assembling components into final products (particularly in the electronics and IT sectors) are required to obtain BIS certification for the finished products in line with the applicable Indian Standards.
The concerned company or LLP must have been incorporated after 31 March 2016 and before 31 March 2030. Further, it should not have been set up by splitting up or reconstructing an already existing business.
The annual turnover of the company or LLP must not exceed Rs. 100 Crore in any previous year relevant to the assessment year for which the deduction under Section 80-IAC is being claimed.
The startup must be recognised by the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry, Government of India.
The startup must obtain a certificate of eligible business from the Inter-Ministerial Board of Certification, as notified in the Official Gazette by the Central Government of India.
Under the Income-tax Act, 1961, for the purpose of calculating the deduction under Section 80-IAC, the profits and gains from the eligible business are computed as though such business were the only source of income of the assessee for the relevant previous years.
The business must not be formed by transferring previously used plant or machinery to a new concern. However, the use of old plant and machinery is permitted if its value does not exceed 20% of the total value of the plant and machinery used in the business.
However, a business that has been reconstructed or revived can still claim a deduction under Section 80-IAC if it has been re-established due to:
- substantial damage, or
- destruction caused by a natural disaster, or
- other unforeseen events (such as riots, civil disturbances, accidental fire or war) affecting any building, plant, machinery or furniture owned by the assessee and used for carrying on such business.
Benefits of Section 80-IAC
The deduction available under Section 80-IAC of the Income-tax Act, 1961 amounts to 100% of the profits and gains derived from the eligible business.
The deduction can be claimed for any three consecutive assessment years selected by the startup within the first 10 years from the year of incorporation.
During the year in which the deduction is availed, the startup’s tax liability becomes Nil, which also removes the obligation to pay advance tax for that year.
The deduction under this section eases the tax burden typically faced by startups in their early stages. By lowering taxable income, it reduces financial pressure and allows startups to deploy their funds more effectively in business operations.
Startups can apply online for this tax benefit without any government fee. The simplified, digital process makes compliance easier and encourages more startups to utilise the exemption.
Documents Needed
A startup seeking deduction under Section 80-IAC must upload the following documents in PDF format:
Name of the startup, date of incorporation, registered address and place of business
Contact information (email ID, phone number and PAN of the entity)
Nature of entity (LLP – Limited Liability Partnership or PLC – Private Limited Company)
DIPP recognition number and incorporation/registration number
LLP Agreement / Deed (for LLPs)
Memorandum of Association (for Private Limited Companies)
Board Resolution, if applicable
CA-certified Balance Sheet and Profit & Loss statements
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Financial statements for the last 3 years, or for all years since incorporation (whichever is shorter)
Income-tax returns for the last 3 years, or from the year of incorporation
URL of a video pitch explaining the startup
Pitch deck in PDF format
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