Section 80-IAC: A Complete Guide to 100% Tax Exemption for Your Startup (2025)

Overview : The Indian government, through the Startup India initiative, has introduced several measures to foster a robust entrepreneurial ecosystem. Among the most significant financial incentives is the tax holiday provided under Section 80-IAC of the Income Tax Act, 1961. This provision offers eligible startups a 100% deduction on their profits for three consecutive years, providing a crucial financial cushion in their formative stages. Following the Union Budget 2025-26, the government, through the Finance Act 2025, extended the incorporation deadline for eligible startups to March 31, 2030, significantly widening the opportunity window. This comprehensive guide provides a definitive walkthrough of the eligibility criteria, the application process, and the strategic importance of this powerful tax benefit for your business.

What Exactly is the Section 80-IAC Tax Exemption? 💡

The tax exemption under Section 80-IAC is a powerful fiscal incentive designed to help early-stage startups retain their earnings for reinvestment into the business. As per Section 80-IAC of the Income Tax Act, 1961, an eligible startup can claim a 100% deduction on the profits and gains derived from its eligible business. This tax holiday can be availed for any three consecutive assessment years of the startup’s choice, within its first ten years of incorporation. This strategic flexibility allows founders to choose their most profitable years to claim the benefit, maximising its impact on their growth trajectory. The cumulative number of startups granted tax exemption under the scheme is 3,700 since its inception.

Key Tax Benefit Details

The Two-Step Path to Exemption: DPIIT Recognition and IMB Certification 📋

Claiming the 80-IAC benefit is not a single-step process. It requires a startup first to be recognised by the government and then be certified as innovative. Understanding these two distinct stages is crucial for a successful application:

• DPIIT Recognition: This is the foundational step. Your entity must first be officially recognised as a “startup” by the Department for Promotion of Industry and Internal Trade (DPIIT) under the Notification G.S.R. 127(E) dated 19th February 2019.
• IMB Certification: After getting DPIIT recognition, you must apply for and receive a certificate of eligibility from the Inter-Ministerial Board (IMB) specifically to claim the tax exemption under Section 80-IAC.

Step 1: Are You Eligible for DPIIT Startup Recognition?

Before even considering the tax exemption, your business must meet the definition of a “Startup” as per the official DPIIT notification. This recognition is the gateway to all government startup schemes.

Key Eligibility Criteria for DPIIT Recognition:

The following criteria must be satisfied as per the DPIIT Notification dated 19th February 2019:

• Age of Entity: The entity must not be more than 10 years old from its date of incorporation/registration
• Entity Type: Must be incorporated in India as:
  • Private Limited Company (under the Companies Act, 2013)
  • Limited Liability Partnership (under the Limited Liability Partnership Act, 2008)
  Partnership Firm (registered under the Indian Partnership Act, 1932) even if recognised as a startup, is not eligible to apply under Section 80-IAC Tax Exemption.
• Annual Turnover: The company’s turnover for any of the financial years since its incorporation must not have exceeded ₹100 crores
• Original Entity: The startup must be an original entity and is not formed solely to avail benefits under the Startup India scheme, which includes tax holiday.Following entities are not considered as original entity:
  • The start-up formed by the splitting up of or reconstruction of a business already in existence; and
  • The start-up formed by the transfer of machinery or plant previously used for any purpose, to a new business.
  • Resultant entity or entities formed due to merger demerger/ acquisition/ amalgamation/ absorption/will not be recognized as Startup.
  • Entities formed due to compromise/ arrangement as provided under the Companies Act, 2013.
  • The startup, being an additional entity of the already existing entity/entities with the same address, production line/services, and at least one common director/designated partner/partner, will not be recognised as a startup.
  • Holding/Subsidiary Companies will not be permitted for recognition.
  • Any entity formed by a Joint Venture will not be recognised. will be derecognised.
  Any startup becoming a holding/subsidiary of any company after recognition or entering into any Joint venture will be derecognised.
• Innovative & Scalable Business: The entity must be working towards innovation, development, or improvement of products, processes, or services, or it must be a scalable business model with high potential for employment generation or wealth creation

Step 2: Who is Eligible for the Section 80-IAC Exemption? ✅

Once you have your DPIIT Recognition certificate, you can apply for the tax exemption. The criteria for this are more specific and are laid down in Section 80-IAC itself.

Conditions for Claiming the 80-IAC Benefit: The eligibility requirements as per Section 80-IAC(2) of the Income Tax Act include:

• DPIIT Recognition: You must be a DPIIT-recognised startup with a valid certification
• Entity Type: The benefit is only available to startups incorporated as a Private Limited Company or a Limited Liability Partnership (LLP). Only a Private Limited or a Limited Liability Partnership is eligible for Tax exemption under Section 80IAC
• Incorporation Date: The Finance Act 2025 extended this benefit, making startups incorporated on or before March 31, 2030, eligible for the deduction
• IMB Certificate: The startup must hold a certificate of eligible business from the Inter-Ministerial Board of Certification, as notified by the Central Government
• Turnover Limit: Annual turnover should not exceed ₹100 crore in the financial year for which the exemption is claimed

Comparative Eligibility Table

How to Apply for the 80-IAC Tax Exemption: A Step-by-Step Guide 🚀

The entire application process is managed online through the official Startup India portal, making it streamlined and accessible for entrepreneurs across the country. Under the updated system, complete applications are now processed within 120 days, significantly reducing procedural delays and enhancing administrative efficiency. The detailed application process is as under:

• Get DPIIT Recognition:
  • Visit the Startup India Portal
  • Complete the online application for DPIIT recognition
  • Submit Certificate of Incorporation/Registration and basic company details
  • Processing time: 3-5 working days
• Apply for Tax Exemption:
  • Log in to your startup profile on the Startup India portal
  • Navigate to the “Schemes & Policies” section
  • Find the link for Tax Exemption under Section 80-IAC
  • No government fees required for the application
• Complete the Application Form: Required documents include:
  • Memorandum of Association (MOA)/LLP Deed
  • Annual audited financial statements
  • Shareholding pattern details
  • Detailed pitch deck explaining innovation (minimum 10 slides)
  • Declaration on company letterhead regarding business formation
• IMB Evaluation:
  • Your application is forwarded to the Inter-Ministerial Board (IMB)
  • The IMB comprises representatives from DPIIT and other departments
  • They evaluate the innovative nature and scalability of your business
  • The DPIIT approved a total of 187 startups for income tax exemption across the 79th (75 approvals) and 80th (112 approvals) IMB meetings, the latter of which was held on April 30, 2025
• Receive Certification & Claim Dedication:
  • If approved, you will receive the IMB certificate via email
  • Use this certificate to claim a 100% deduction when filing the Income Tax Return (ITR)
  • File deduction under Section 80-IAC in your ITR with the certificate reference number.
• Rejection:
  • You may reapply under Section 80 IAC after three months of receipt of the rejection mail from the Startup India income tax exemption department. The startup needs to redo each step with improvement.
  • Initiate the application process well in advance of your funding needs or the tax assessment period. This proactive approach allows room for any potential delays in processing, including rejection, ensuring that you can access benefits promptly when needed.

Strategic Considerations for Maximising Benefits 💰

Understanding the strategic aspects of Section 80-IAC can help you maximise the benefit for your startup:

• Optimal Timing for Claiming Dedication: The flexibility to choose any three consecutive years within your first decade provides a significant strategic advantage:
  • Early Stage Strategy: If your startup is pre-revenue or in losses initially, you can defer claiming the benefit
  • Growth Phase Strategy: Wait until you achieve stable profitability to maximise the absolute tax savings
  • Exit Planning: Consider timing the benefit claim before any major exit or acquisition event
• Financial Impact Analysis: The tax savings depend on the specific corporate tax rate applicable to your startup. As of 2025, the primary rates under the Income Tax Act, 1961 (excluding surcharge and cess) are:
  • 22% for domestic companies opting for the new regime under Section 115BAA
  • 25% for domestic companies with turnover up to ₹400 crores in the previous year
  • 30% for domestic companies not meeting the above criteria
  • 15% for new manufacturing companies under Section 115BAB (if commenced manufacturing by March 31, 2024)

Here’s a more accurate analysis of potential savings (base tax only, excluding cess and surcharge):

Note: Actual tax liability includes applicable surcharge and cess as per Income Tax Act provisions

Conclusion

The Section 80-IAC tax exemption is more than just a financial benefit; it represents a strategic advantage that allows Indian startups to build a strong capital base during their most vulnerable years. By channelling funds that would have otherwise gone to taxes back into product development, market expansion, and talent acquisition, you can significantly accelerate your growth trajectory. While the process requires careful documentation and a clear demonstration of innovation, navigating it successfully can unlock immense value. With the recent extension to March 31, 2030, enacted through the Finance Act, 2025, even more startups now have the opportunity to leverage this benefit, setting themselves on a path to long-term success and sustainability in India’s thriving startup ecosystem.

FAQ’s

Author Bio

Editorial Team  

Setindiabiz Editorial Team is a multidisciplinary collective of Chartered Accountants, Company Secretaries, and Advocates offering authoritative insights on India’s regulatory and business landscape. With decades of experience in compliance, taxation, and advisory, they empower entrepreneurs and enterprises to make informed decisions.