A DPIIT-recognised startup can claim a 100% deduction of profits for any 3 consecutive years out of its first 10 years under Section 80-IAC — effectively zero income tax on those years’ profits. Budget 2025 extended the eligibility window to startups incorporated before 1 April 2030. Other benefits: ESOP tax deferral, the now-abolished angel tax, Section 54GB capital-gains relief and relaxed loss carry-forward. MAT at 15% still applies on book profits.
Startup Tax Benefits — Summary Table
Every major income-tax benefit available to a DPIIT-recognised startup, the governing section and its key condition.
| Benefit | Section | What it gives | Key condition |
|---|---|---|---|
| Profit deduction (tax holiday) | 80-IAC | 100% for 3 of first 10 years | DPIIT + IMB certification |
| ESOP tax deferral | Perquisite / 192 | Tax at exercise deferred to sale / 5 yr / exit | DPIIT-recognised startup |
| Angel tax removal | 56(2)(viib) | No tax on share premium above FMV | Abolished from 1 Apr 2024 |
| Investor LTCG relief | 54GB | LTCG on residential property reinvested in startup | 50% invested within 6 months |
| Loss carry-forward | Section 79 | Losses survive a change in shareholding | DPIIT recognition; up to 8 yrs |
| MAT credit carry-forward | 115JAA | MAT paid set off against future regular tax | 15-year carry-forward |
References under the Income-tax Act, 2025 are renumbered from AY 2026-27; the 1961-Act section numbers above are retained for familiarity. Confirm on incometax.gov.in before filing.
Section 80-IAC — The 3-Year Tax Holiday
Section 80-IAC lets an eligible startup claim a 100% deduction of eligible-business profits for 3 consecutive assessment years out of the first 10 years from incorporation. You choose which 3 years — so you can time the holiday to your most profitable years. Budget 2025 extended the window to startups incorporated before 1 April 2030.
| Condition | Requirement |
|---|---|
| DPIIT recognition | Recognised as a startup under Startup India |
| Date of incorporation | On/after 1 Apr 2016 and before 1 Apr 2030 |
| Turnover cap | Not exceeding ₹100 crore in any FY since incorporation |
| Entity type | Private limited company or LLP (not a firm/proprietor) |
| Nature of business | Innovation / improvement of products, processes or a scalable model |
| Not reconstructed | Not formed by splitting up or reconstruction of an existing business |
| IMB certificate | Certified by the Inter-Ministerial Board (IMB) |
MAT under Section 115JB (15% of book profit) still applies during the holiday — 80-IAC exempts regular tax, not MAT.
Even with a full 80-IAC deduction, a company with accounting profit pays Minimum Alternate Tax at 15% under Section 115JB. The MAT paid is not lost — it becomes a credit you can carry forward for up to 15 years and set off once you are on regular tax after the holiday.
Want the 80-IAC + IMB certification handled end-to-end?
Get 80-IAC Help →ESOP Taxation — Deferred for Startups
Before Finance Act 2020, ESOP perquisite tax hit employees at exercise — tax owed before any cash was realised. For eligible DPIIT-recognised startups, that tax is now deferred to the earliest of three events.
| Aspect | Pre-2020 | Post-Finance Act 2020 (startups) |
|---|---|---|
| Tax trigger | At exercise (always) | Sale, 5 yrs from exercise, or exit |
| Cash-flow issue | Tax without cash realised | Aligned with a cash / liquidity event |
| Employer TDS | Deduct at exercise | Deduct at the deferred trigger |
| Who qualifies | All companies | DPIIT-recognised startups only |
The perquisite (FMV on exercise date minus exercise price) is taxed as salary at slab rates when the trigger occurs; any later gain on selling the shares is taxed separately as capital gains.
Structuring an ESOP pool for your team?
ESOP Tax Advice →Angel Tax — Abolished from 1 April 2024
Angel tax under Section 56(2)(viib) once taxed the premium a startup received when it issued shares above fair market value as "income from other sources". Budget 2024 abolished it entirely, effective 1 April 2024 (AY 2025-26 onwards), for all investors — resident and non-resident. Startups raising from April 2024 onwards have no angel-tax exposure.
| Period | Angel-tax position |
|---|---|
| Before 1 Apr 2024 | 56(2)(viib) applied to shares issued above FMV; DPIIT startups had a conditional exemption |
| From 1 Apr 2024 | Abolished — 56(2)(viib) deleted; no tax on share premium for any investor |
Section 54GB — LTCG Relief for Startup Investors
Section 54GB lets an individual or HUF exempt long-term capital gains on the sale of a residential property by reinvesting into equity shares of an eligible startup.
- Invest at least 50% of the net consideration in the startup’s equity shares.
- Reinvest within the due date for filing the return of the year of transfer.
- The startup uses the funds to buy a new asset within 1 year of subscription.
- Hold the startup shares (and the startup its new asset) for at least 5 years.
- The startup must be DPIIT-recognised with turnover under ₹100 crore.
Raising angel or seed funding this year?
Fundraising Tax Check →Loss Carry-Forward & MAT for Startups
Normally Section 79 forfeits carried-forward losses if more than 49% of the beneficial shareholding changes — a real risk for startups that dilute founders across funding rounds. DPIIT-recognised startups get a relaxation: losses survive the shareholding change so long as the original shareholders continue to hold their shares. Business losses carry forward for up to 8 years.
You keep your losses if
- You are DPIIT-recognised
- Original loss-year shareholders still hold their shares
- You file returns on time each year
Watch out when
- You are not DPIIT-recognised (plain Section 79 applies)
- Founders fully exit in a funding round
- Returns are filed late — loss carry-forward can be denied
Sequence the benefits: don’t burn your 3-year 80-IAC holiday on loss-making early years. Carry losses forward, and elect the holiday for the first genuinely profitable stretch inside the 10-year window — while banking MAT credit for later.
Startup Income Tax — FAQs
Related TaxClue services
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