Tax benefits for Start-ups in India – Section

80-IAC of the Income Tax Act

The Government of India has taken the initiative of Startup India to enhance the startup
environment in the country. The major purpose of the same is to make an environment facilitative
to the growth and development of startups in India. As per Section 80-IAC of the income tax act, it
furnishes tax incentives for startups. The major key component of the program is that it furnishes
tax benefits to the qualified startups for their initial three years of procedure under section 80IAC.

Indeed it is vital for the startup to get engaged in the new product or service development. Section
80-IAC of the Income Tax Act has had a significant impact on startups. Tax incentives have boosted
the Indian startup ecosystem to a great extent.

FAQs on Tax benefits for Start-ups in India Section 80-IAC of the Income Tax Act.

What is Section 80 IAC of the Income Tax Act?

Section 80-IAC is a benefit offered by Central government to eligible startups by way of providing
tax deduction of an amount equal to 100 percent of the profits and gains derived from eligible
business.

What is the quantum of exemption that can be availed by Startups?

100% of profit derived from eligible business for a block of three consecutive financial years of
choice out of the first 5 years beginning from the year of incorporation.

What do you mean by eligible startups?

Eligible start-up means a company or LLP engaged in eligible business which fulfils the following
conditions,
1. It is incorporated on or after 01-04-2016 but before 01-04-2024. (Finance Bill 2023
proposes to amend Section 80-IAC of the Income Tax Act 1961 to extend the deadline from
April 1, 2023 to April 1, 2024).
2. Total Turnover does not exceed 100 crores in the previous year relevant to the assessment
year for which deduction is claimed.
3. It holds a certificate of eligible business from the Inter-Ministerial Board of Certification.

What do you mean by eligible business?

Eligible business for the purpose of Section 80 IAC means a business carried out by an eligible
start-up engaged in innovation, development or improvement of products or processes or services
or a scalable business model with a high potential of employment generation or wealth creation.

What are the Conditions to be satisfied to get certified by the Inter-ministerial board of certification?

1. Certification will be granted only to a Private limited company or LLP.

 2. The period of existence and operations of such entity should not exceed 10 years from the
date of incorporation.
3. The total turnover of the entity does not exceed Rs. 100 crores in any of the financial years
since its incorporation.
4. The Entity should not have been formed by splitting up or reconstructing an already existing
business.
5. The entity should work towards development or improvement of a product, process or
service and/or have scalable business model with high potential for creation of wealth &
employment

How to get certified by the Inter-Ministerial Board of Certification?

 At present there are two methods to apply for certification.

1. Through https://www.nsws.gov.in/ (National Single Window System)
2. Through https://www.startupindia.gov.in/

What are the Conditions to be satisfied for claiming deduction under section 80 IAC of the Income Tax
Act?

 The entity should be an eligible Startup.

 The entity is not formed by splitting up, or the reconstruction, of a business already in
existence.
 The entity is not formed by the transfer to a new business of machinery or plant previously
used for any purpose.
 Form 10CCB Should be filed by the Chartered Accountant one month before the due date of
filing the return.

How to apply for exemption under section 80 IAC?

To avail of Tax exemption under section 80 IAC of the Income Tax Act, the startup should register
on the “Start-up India portal”. An application for exemption can be made using prescribed
documents.

Audit of Accounts?

The deduction shall be allowed only if a chartered accountant has audited the accounts of the
startup for the relevant previous year and the assessee furnishes the audit report in the form that
is prescribed, and duly signed and verified by such an accountant along with his return of income.
CBDT clarification on the eligibility of small startups to avail of tax holiday

 There was a confusion when section 80-IAC was introduced where the turnover limit to get
certified as an eligible Startup under DPIIT was 100 crores whereas the turnover limit for
availing deduction under section 80-IAC was Rs. 25 crores.
 The Central Board of Direct Taxes (CBDT) vide notification dated 22/08/2019 had clarified
that small start-ups with turnovers up to Rs. 25 crores will continue to get the promised tax
holiday as specified in Section 80-IAC of the Income Tax Act, 1961 provided all the conditions
contained in section 80-IAC is satisfied.
 Section 80-IAC was amended consequently and the turnover for DPIIT certification and
section 80-IAC deduction is now Rs. 100 crores.

Are the entities certified by DPIIT automatically eligible to claim deduction under section 80-IAC?

No, the entities certified by DPIIT must apply separately in the Startup India portal to avail
exemption under section 80-IAC.

M/s Sharma Radha & Associates

Rajendra Sharma
Chartered Accountant