Section 80-IAC — 100% Tax Holiday for DPIIT-Recognised Start-ups

Q: Can a startup choose which 3 years to claim the 80-IAC deduction?

Yes. Section 80-IAC allows the startup to claim 100% deduction for any 3 consecutive years out of the first 10 years from incorporation (extended from 7 years in Budget 2023). The startup has the flexibility to choose the most tax-efficient 3-year window — typically the years when profits are highest. If the startup makes losses in the early years (common for growth-stage companies), it can defer the 80-IAC claim to later profitable years, as long as they fall within the 10-year window from incorporation.

Q: Is there a turnover limit to continue claiming 80-IAC?

Yes. One of the eligibility conditions for Section 80-IAC is that the startup's annual turnover must not exceed ₹100 crore in any of the previous years since incorporation. This is not a one-time check — if turnover exceeds ₹100 crore in any year, the startup loses 80-IAC eligibility from that year onwards. Note: DPIIT recognition itself does not lapse on crossing ₹100 crore, but the 80-IAC benefit does. Revenue-stage startups approaching this threshold should plan their tax strategy accordingly.

Q: Can a startup carry forward losses if it claims 80-IAC deduction?

Yes, subject to normal carry-forward rules under the Income-tax Act. Section 80-IAC reduces taxable income to zero (100% deduction) for the chosen years — it does not affect the carry-forward of business losses from non-deduction years. Unabsorbed depreciation and business losses from years outside the 80-IAC window can be carried forward for 8 years (business loss) or indefinitely (unabsorbed depreciation). The interplay with MAT (Minimum Alternate Tax) is important: even with 80-IAC, companies pay 15% MAT on book profits, which can be carried forward as MAT credit for 15 years.

Q: What is the difference between Section 80-IB and Section 80-IAC?

Section 80-IB provided tax holiday to various businesses (industrial undertakings, hotels, hospitals, etc.) based on location or sector — it has mostly been phased out or restricted. Section 80-IAC is specifically designed for DPIIT-recognized eligible startups and is the current operative provision for startup tax benefits. 80-IB deductions ranged from 25% to 100% depending on the undertaking type; 80-IAC provides a flat 100% deduction. 80-IAC also has specific conditions including IMB approval, incorporation date window, and turnover cap that were not part of 80-IB. For new startups, only 80-IAC is relevant.

Q: Is angel tax still applicable to DPIIT-recognized startups?

No. DPIIT-recognized startups are exempt from Section 56(2)(viib) angel tax, subject to certain conditions. The angel tax provisions taxed investments received above the fair market value of shares as "income from other sources." The DPIIT notification dated 19-Feb-2019 (as amended) grants exemption to recognized startups — provided the aggregate paid-up share capital and share premium does not exceed ₹25 crore (exemption limit as per notification; verify current limit). Additionally, investments from Category-I and II AIFs (Alternate Investment Funds) are exempt from angel tax. The Finance Act 2023 extended angel tax to foreign investors, but DPIIT startups retain their exemption.

Updated: 3 June 2026 | Income Tax Act, 1961 | Verified against DPIIT notifications

Section 80-IAC of the Income Tax Act provides a 100% deduction on profits to eligible startups recognised by DPIIT (Department for Promotion of Industry and Internal Trade). The deduction is available for any 3 consecutive years out of the first 10 years from incorporation. The startup must have been incorporated between 1 April 2016 and 31 March 2025 and must obtain separate approval from the Inter-Ministerial Board (IMB) — DPIIT recognition alone is not sufficient for 80-IAC.

100%

Profit deduction for any 3 consecutive years in the first 10 years from incorporation
Effectively zero corporate tax in those 3 years. MAT at 15% still applies to companies. Annual turnover must not exceed ₹100 crore.

⚠

DPIIT recognition ≠ 80-IAC eligibility. A startup must separately apply to the Inter-Ministerial Board (IMB) for 80-IAC approval through the Start-up India portal. The IMB evaluates whether the startup's product or service involves innovation and has scalable employment potential. Many DPIIT-recognised startups have been rejected at the IMB stage.

Eligibility Conditions for Section 80-IAC

Condition	Requirement	Notes
Entity Type	Company (private limited) or LLP only	Sole proprietorships and partnerships are not eligible
DPIIT Recognition	Must be recognised by DPIIT as a startup	Apply at startupindia.gov.in
Incorporation Date	Between 1 Apr 2016 and 31 Mar 2025	Extended in Budget 2023; verify if further extended in subsequent budgets
Annual Turnover	Must not exceed ₹100 crore in any year	Checked for each year of deduction claim
Business Nature	Innovation, development, deployment of new product/process/service driven by technology	IMB evaluates this condition
IMB Approval	Must obtain certificate from Inter-Ministerial Board	Separate from DPIIT recognition; applied on Start-up India portal
Reconstruction bar	Not formed by splitting or reconstructing an existing business	Genuine new incorporation required

Startup Tax Benefits — Summary

Benefit	Section	Condition	Maximum Benefit
100% profit deduction	80-IAC	DPIIT + IMB approval; turnover < ₹100 cr; incorporated 2016-2025	Zero tax for 3 out of 10 years
Angel tax exemption	56(2)(viib)	DPIIT recognition; paid-up capital within prescribed limit	Investments above FMV not taxed as income
Loss carry-forward without shareholding continuity	79 (exception)	DPIIT-recognised eligible startup; all shareholders from loss year must benefit	Can carry forward losses even if 51% shareholding changes
Tax on ESOP deferred	192(1C)	DPIIT startup; resident employee; ESOP allotted after 1 Apr 2020	TDS on ESOP deferred to 5 years / transfer / leaving employment (earlier of)
Capital gains exemption on investment	54GB	Individual investor transfers residential property and invests proceeds in eligible startup	Capital gains exempt proportionally to startup investment

MAT Applicability — The Fine Print

Section 80-IAC reduces taxable income under regular provisions to zero. However, Minimum Alternate Tax (MAT) under Section 115JB is still payable at 15% of book profits (plus surcharge and cess). The MAT paid creates a MAT credit that can be carried forward for 15 years and set off against future regular tax liability in years when the startup's income exceeds the MAT threshold. LLPs are not subject to MAT; only companies.

STEP-BY-STEP

How to Apply for 80-IAC — IMB Approval Process

1. Obtain DPIIT recognition at startupindia.gov.in (if not already recognised). 2. Log in to the Start-up India portal and navigate to Tax Exemption section. 3. Fill the 80-IAC application with details of the innovative business model, technology usage, and scalability. 4. Upload incorporation certificate, audited financials, and pitch deck if required. 5. IMB (comprising DPIIT, CBDT, and other ministry representatives) reviews the application — typically takes 45-90 days. 6. On approval, an IMB certificate is issued. 7. Claim deduction in the ITR (Form ITR-6 for companies) for the chosen years, attaching the IMB certificate.

Budget 2023 update: The 10-year window (extended from 7 years) applies to startups incorporated up to 31-Mar-2025. The Finance Act 2023 also introduced angel tax applicability to foreign investors (Section 56(2)(viib)), but DPIIT-recognised startups remain exempt. Always verify the current incorporation date window and turnover limit in the applicable Finance Act.

Frequently Asked Questions

Can a startup choose which 3 years to claim the 80-IAC deduction?

Yes. Section 80-IAC allows the startup to claim 100% deduction for any 3 consecutive years out of the first 10 years from incorporation (extended from 7 years in Budget 2023). The startup has the flexibility to choose the most tax-efficient 3-year window — typically the years when profits are highest. If the startup makes losses in the early years (common for growth-stage companies), it can defer the 80-IAC claim to later profitable years, as long as they fall within the 10-year window from incorporation.

Is there a turnover limit to continue claiming 80-IAC?

Yes. One of the eligibility conditions for Section 80-IAC is that the startup's annual turnover must not exceed ₹100 crore in any of the previous years since incorporation. This is not a one-time check — if turnover exceeds ₹100 crore in any year, the startup loses 80-IAC eligibility from that year onwards. Note: DPIIT recognition itself does not lapse on crossing ₹100 crore, but the 80-IAC benefit does. Revenue-stage startups approaching this threshold should plan their tax strategy accordingly.

Can a startup carry forward losses if it claims 80-IAC deduction?

Yes, subject to normal carry-forward rules under the Income-tax Act. Section 80-IAC reduces taxable income to zero (100% deduction) for the chosen years — it does not affect the carry-forward of business losses from non-deduction years. Unabsorbed depreciation and business losses from years outside the 80-IAC window can be carried forward for 8 years (business loss) or indefinitely (unabsorbed depreciation). The interplay with MAT (Minimum Alternate Tax) is important: even with 80-IAC, companies pay 15% MAT on book profits, which can be carried forward as MAT credit for 15 years.

What is the difference between Section 80-IB and Section 80-IAC?

Section 80-IB provided tax holiday to various businesses (industrial undertakings, hotels, hospitals, etc.) based on location or sector — it has mostly been phased out or restricted. Section 80-IAC is specifically designed for DPIIT-recognized eligible startups and is the current operative provision for startup tax benefits. 80-IB deductions ranged from 25% to 100% depending on the undertaking type; 80-IAC provides a flat 100% deduction. 80-IAC also has specific conditions including IMB approval, incorporation date window, and turnover cap that were not part of 80-IB. For new startups, only 80-IAC is relevant.

Is angel tax still applicable to DPIIT-recognized startups?

No. DPIIT-recognized startups are exempt from Section 56(2)(viib) angel tax, subject to certain conditions. The angel tax provisions taxed investments received above the fair market value of shares as "income from other sources." The DPIIT notification dated 19-Feb-2019 (as amended) grants exemption to recognized startups — provided the aggregate paid-up share capital and share premium does not exceed ₹25 crore (exemption limit as per notification; verify current limit). Additionally, investments from Category-I and II AIFs (Alternate Investment Funds) are exempt from angel tax. The Finance Act 2023 extended angel tax to foreign investors, but DPIIT startups retain their exemption.

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