New Tax Exemptions for Start-Ups under Section 80-IAC
Under the Income Tax Act, Section 80-IAC provides an incentive to eligible businesses intending to boost their growth and offer a constant yet reliable source of support. An eligible business can claim a deduction of 10% of the profits and gains derived by an eligible business. The deductions are allowed for up to three consecutive years out of ten years beginning from the year of business incorporation. The eligible business can be engaged in innovation, development, improved products or services, scalable business model with a high potential for employment generation or wealth creation. This article will discuss the new tax exemptions for start-ups under Section 80-IAC. Get your start-ups registered with DPIIT with expert guidance from TaxDunia.
Eligible Start-Ups under Section 80-IAC
A company or LLP engaged in eligible business follows
- Incorporated during the period of 1.4.2016-31.3.2025- revised before 1.4.2030
- Total turnover not exceeding Rs 100Cr in the previous year relevant to the assessment year for which deduction is claimed
- Holds a certificate of eligible business from the notified IMBC
- Is acknowledged by the Ministry of Commerce and Industry, Department of Industrial Policy and Promotion (DIPP), and Government of India
- The period of operations or existence does not exceed 10 years from the date of incorporation
- The start-up as a company is incorporated as a private limited company, a registered partnership firm, or a limited liability partnership
- Works towards development or improvement of a product, process, or service
These conditions should also be fulfilled
- The business is not borne out of separation or splitting of an already established business
- However, if the reason for reconstruction, re-establishment, or revival of the business is the following, then it is an eligible business under section 80-IAC
- Riots or civil disturbances
- Accidental fire or explosion
- Enemy action or action taken in combat
- Flood or other natural calamity
- It is not established by the transfer of plant/machinery formerly used for any purpose to a new business. However, the old plant and machinery that has been already used in another business can be used in a business only if the old plant and machinery does not exceed 20% of the total value of machinery used in the existing business
Benefit under Section 80-IAC for Start-Ups
- Nullifies any tax liability or advance tax
- Easier online application with government fees to promote start-ups and reduce the compliance burden
- A 100% deduction of profits and gains incurred during three consecutive years out of 10 years since incorporation
- Facilitate start-ups and make it easier to comply, especially at the initial stage of the business
- Works as an incentive to promote more and more start-ups to come up with innovative and scalable business models
Latest Changes in Section 80-IAC in 2025
In the 2025 budget, the incorporation period for start-ups under the section 80-IAC has been extended. Earlier, the businesses incorporated before 31.3.2025 could avail of the incentives offered under the section, but from now on, the businesses incorporated till 1.4.2030 can avail of the benefits.
The incorporation period is extended for a further 5 years to encourage more and more units to come up with innovative and scalable ideas and models. Reach out to TaxDunia to get the best advice for your budding start-up and stay in touch to get the most of the government benefits, such as up to 100% tax deductions, lower tax rates, and easier compliance.
