Startup Tax Exemption U/s 80IAC

Online DPIIT Application Filing

Under the Startup India Scheme of the govt of India, start-ups may apply for tax exemption for three years within ten years of their establishment. We assist the start-up in obtaining tax exemption u/s 80IAC.
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Startup Tax Exemption U/s 80IAC of the Income Tax Act

Newly established and incorporated startups often face shortage of financial resources during their initial stages of operations, which further has a negative impact on their sales and profits. The situation is further worsened when out of the minimal income they somehow manage to earn, a huge chunk goes towards meeting various legal and tax compliances, hardly leaving anything behind for further investment. The government has allowed several tax exemptions for Startups in India to help them face this tough challenge, and one of them is provided under Section 80-IAC of the Income Tax. Under this Section, a 100% tax deduction is allowed on the profits earned by eligible startups for three consecutive financial years, while assessing their total taxable income. However, such a startup must not be older than 10 years since incorporation/registration and must not have a turnover exceeding Rs.100 crores in any financial year since its establishment.
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Eligibility for startup tax exemption u/s 80IAC

To claim exemptions under section 80-IAC of the Income Tax Act, businesses must meet certain prescribed criteria. A complete list of all such criteria have been provided in the table below. It is extremely necessary to determine, based on these criteria, the eligibility for Startups in Tax exemptions u/s 80IAC before the filing process begins.
1. Not older than 10 years

Deduction can be claimed in any three years within the first 10 years from the date of incorporation/registration of the Startup.

2. New and Original Entity

The startup must not be formed by splitting up or reconstruction of an existing business entity, except if the reconstruction has been done u/s 33B of the Income Tax Act.

3. Recognized as Startup by the DPIIT

The Department of Promotion of Industry and Internal Trade must recognize startups and the Startup has obtained DPIIT Recognition Certificate.

4. Operates with New Plant and Machinery

The startup must not be formed by the transfer of existing plant and machinery already in use.

5. Either a company or an LLP or registered partnership firm

The startup must either be a Company or a Limited Liability Partnership or registered as a partnership firm. Startups established as any other business structure cannot claim this deduction.

6. Incorporated after 1st April 2016

Any startup incorporated/registered after the 1st of April 2016 till date can avail the tax exemption u/s 80IAC

7. Turnover not exceeding Rs.100 crores

The turnover must not exceed Rs.100 crores for the Financial Year for which deduction u/s 80IAC is being sought in the concerned assessment year.

8. Financial growth, employment or wealth creation as the only objectives

The startup must be operating with the primary aim of financial growth, employment generation, and wealth creation.

8. Must deal in innovative products, services, or processes

The concerned startup must either develop new innovative products, services, or processes, or innovate an improved version of the existing ones. However, the entities formed by splitting up or reconstruction of an existing business are not eligible for DPIIT Startup Tax Benefits.

Benefits of startup tax exemption u/s 80IAC

Among the various tax exemptions for Startups in India, benefits of tax exemption u/s 80 IAC of the Income Tax are quite a prominent one. You can refer to the table below for a brief and precise explanation on all these benefits.

100% Tax Deduction

100% tax deduction on profits can be claimed by eligible Startups while computing their taxable income

Tax Exemption for Startups

Eligible startups get tax exemption under section 80IAC for 3 consecutive financial years within the first 10 years of the Startup’s incorporation/registration

Reduced Tax Burden

Deductions u/s 80-IAC helps cope Startups with the heavy tax burden they face in their initial stages.

Easy & affordable to claim

To claim deductions u/s 80-IAC, a simple online application can be filed without any government fee

Documents Required for claiming Section 80-IAC Exemption

Accurate and Adequate documentation is key to the approval of 80-IAC application. Among the necessary documents required are the basic incorporation documents of the startup, its account statements, income returns, and the documents validating the concept and current stage of the startup.
S.No List of Details & Documents
1.
Name, address, and nature of business of the startup
2.
Date of Incorporation Number and CIN / LLPIN
3.
Permanent Account Number (PAN) of the startup
4.
DIPP Number of the Startup after its recognition by the DPIIT
5.
Contact Information of the Startup (E-mail ID and Contact Number)
6.
Copy of the Memorandum of Association of the company, or LLP Deed of the LLP or Registered Partnership Agreement
7.
Copy of the Board Resolution, in case of a company, if any
8.
Copies of the startup’s Balance Sheet and Profit & Loss Statement of the last 3 financial years, certified by a practising Chartered Accountant
9.
Copies of Income Tax Returns of the last 3 financial years mandatory, if it was incorporated before 1st April, 2018
10.
Copy of Certificate obtained under section 56 of the Income Tax Act (Eligibility under this section)
11.
Video link and copy of pitch deck required according to the stage in which the startup is (ideation / validation / early traction / scaling)
We recommend you send the soft copies of documents along with the filled questionnaire that our startup advisors will share with you. We will verify the information and legal documents sent to us. Please contact us for further clarifications.

How to apply for 80IAC exemption of the Income Tax Act?

STEP 1 – Documentation
The process to avail 80-IAC deduction under the Income Tax Act is completely application-based. So, like all other applications, there is long list of documents required to be attached with it, as well. Since, we consider documentation as the most important aspect of any application and one of the major reasons for its ultimate approval or rejection by the concerned authority, we strongly recommend every applicant to ensure the possession of all the documents required to apply for tax exemption u/s 80IAC in their correct formats and with the updated information, beforehand, to avoid any hindrances later.
STEP 2 – Login to the Startup India Portal
After arranging all the necessary documents, the next step is to visit the official website of Startup India, and under the head “Recognition” on the main menu, choose “Apply for Tax Exemptions”. You will be asked to log into the portal using your login credentials.
STEP 3 – Fill out the Application form
After you log in, the application form for claiming 80-IAC exemption will appear on the screen. You are required to fill these forms with necessary details of the startup like its name, address, business activity/industry, contact information, incorporation, and PAN details. Also, since the startup is already recognized by the DPIIT, you are also required to submit the DIPP number mentioned in its Startup India Recognition Certificate.
STEP 4 – Upload all necessary attachments
After you are done with filling out all the details, you can upload all the necessary supporting attachments like the constitution documents of the startup (MOA or LLP Deed), copy of annual accounts and ITR, video link, and pitch deck explaining the product prototype and idea behind establishing the Start Up.
STEP 5 – Enter the details of the authorized signatory
The last set of details to be filled in the application, after all the basic details of the startup and the respective supportive documents are uploaded, are the details of the authorized signatory, including his name and designation. The authorised signatory is usually one of the directors / designated partners of the startup, appointed for this purpose by the Board if it is a company and Partners if it is an LLP.
STEP 6 – Submit the Application
Once all the details have been filled out correctly, and all the documents have been uploaded in their prescribed formats, you can finally submit your application on the Startup India Portal itself. The application will be processed by the concerned authority, and if approved, you will be able to claim tax deduction under Section 80-IAC of the application.

Frequently Asked Questions

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Section 80IAC offers 100% tax deduction for a period of 3 years to newly incorporated startups. To avail this deduction an application is submitted to and approved by the Department of Promotion of Industry and Internal Trade (DPIIT).
Under Section 80IAC of the Income Tax Act, eligible startups can get 3 consecutive years of tax holidays within the first 10 years from the date of their incorporation.
Only LLP and Companies which are recognized as Startups by the DPIIT can claim deductions under Section 80IAC of the Income Tax Act.
No. Since a foreign business cannot be recognized as Startup by the DPIIT, it cannot claim exemption u/s 80IAC of the Income Tax Act.
The time required for processing of applications under 80IAC depends on several factors and the decision is in the hands of the inter-ministerial body, where they take the final decision in the Meetings of the IMB. Hence predicting and exact date is not practical; however, an application gets processed within 2 to 3 weeks of time.
The application for exemption under Section 80IAC of the Income Tax Act, 1961 can be submitted free of any government cost.
Yes. Startups can avail 80IAC exemption if formed by the transfer of machinery, previously being used outside India, but not by the concerned startup. Moreover, prior to its installation outside India, it must have never been in use in India, imported into India and no deduction on its depreciation has ever been allowed in India.
Reconstructed businesses cannot claim 80IAC exemption, unless they fall under section 33B of the Income Tax Act, which allows a reconstructed industrial undertaking, previously active, but thereafter discontinued due damage or destruction caused by natural calamities, riots / civil disturbances, accidental fire / explosion, or an act of the enemy, to claim 80IAC exemption, provided it was re-established within 3 years of such discontinuation.
An entity shall cease to be a Startup on completion of ten years from the date of its incorporation/ registration or if its turnover for any previous year exceeds one hundred crore rupees.
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