What tax exemptions are available for startups under Section 80-IAC in India?

Section 80-IAC of the Income Tax Act provides a significant tax benefit for eligible startups recognized by the Department for Promotion of Industry and Internal Trade (DPIIT).

Key benefit: An eligible startup can claim a 100% deduction on profits for any 3 consecutive assessment years out of the first 10 years from the date of incorporation.

Eligibility criteria:

• Must be a company or LLP incorporated after April 1, 2016, but before April 1, 2030
• Total turnover must not exceed ₹100 crore in any of the financial years from incorporation to the year of claim
• Must be recognized as a startup by DPIIT (via the Startup India portal)
• The startup must be engaged in innovation, development, or improvement of products/processes/services, or must have a scalable business model with high potential for employment/wealth creation
• Must NOT have been formed by splitting up or reconstruction of an existing business
• Must NOT have used plant and machinery previously used for any purpose (second-hand assets exceeding 20% of total asset value disqualify)

How to apply:

• Register on the Startup India portal (startupindia.gov.in)
• Get DPIIT recognition (self-certification process)
• Apply for the Inter-Ministerial Board (IMB) certification for tax benefits (separate from DPIIT recognition)
• Claim the deduction while filing ITR

Other startup benefits:

Section 56(2)(viib) exemption (Angel Tax): DPIIT-recognized startups were exempt from Angel Tax on shares issued at a premium above fair market value. From FY 2024-25, Angel Tax has been completely abolished for all companies, so this is no longer a concern.

Section 54GB: Capital gains tax exemption for investing sale proceeds of a residential property into equity shares of an eligible startup (conditions apply).

Carry forward of losses: If there is a change in shareholding pattern, losses can still be carried forward as long as the original shareholders continue to hold shares (relaxation under Section 79 for eligible startups).

Important: The 80-IAC deduction is available only under the old tax regime. If your startup opts for the new tax regime or the lower corporate tax rate under Section 115BAA (22%), you cannot claim this deduction.