Overview of Section 80-IAC Exemption
Section 80-IAC of the Income Tax Act, 1961 provides a valuable tax benefit for eligible startups - a 100% deduction of profits and gains derived from an eligible business for any three consecutive assessment years out of ten years beginning from the year of incorporation.
Key Benefit Summary
100%
Tax Exemption
3 Years
Consecutive
Out of 10
Years Window
Eligibility Criteria for 80-IAC
To qualify for tax exemption under Section 80-IAC, a startup must meet ALL of the following conditions:
1. DPIIT Recognition
The startup must be recognized by the Department for Promotion of Industry and Internal Trade (DPIIT) under the Startup India initiative.
2. Incorporation Period
Company/LLP must be incorporated between April 1, 2016 and March 31, 2024 (extended to March 31, 2024 by Finance Act 2023).
3. Turnover Limit
Total turnover must not exceed ₹100 crores in the previous year in which exemption is claimed.
4. Fresh Business Activity
The business must not be formed by splitting up or reconstruction of an existing business (unless as part of an approved restructuring).
5. Original Business
Must not be formed by transferring machinery/plant previously used for any purpose (unless imported or usage < 1 year).
Important Exclusions
The following businesses are NOT eligible for 80-IAC exemption:
- • Businesses engaged in liquor, tobacco, gaming, gambling
- • Speculative business (trading in shares, derivatives for speculation)
- • Operating windmills, solar plants (specific infrastructure exclusions apply)
Tax Benefits Available
Primary Benefit: 80-IAC
- ✓ 100% deduction of profits
- ✓ Any 3 consecutive years
- ✓ Out of 10-year window
- ✓ Maximum turnover limit: ₹100 Cr
- ✓ Option to choose benefit years
Additional Benefits
- ✓ Section 54GB capital gains exemption
- ✓ Self-certification for labour laws
- ✓ Fast-track patent examination
- ✓ Funding from SIDBI Fund of Funds
- ✓ Public procurement preference
Illustration: Tax Savings
| Year | Profit | Normal Tax | With 80-IAC | Savings |
|---|---|---|---|---|
| Year 3 | ₹50 Lakhs | ₹7.8 Lakhs | ₹0 | ₹7.8 Lakhs |
| Year 4 | ₹80 Lakhs | ₹16.96 Lakhs | ₹0 | ₹16.96 Lakhs |
| Year 5 | ₹1 Crore | ₹22.88 Lakhs | ₹0 | ₹22.88 Lakhs |
| Total Tax Saved (3 years) | ₹47.64 Lakhs | |||
Application Process for 80-IAC
Obtain DPIIT Recognition
First, get your startup recognized by DPIIT through the Startup India portal. This is mandatory before applying for 80-IAC.
File Form 1 on Startup India Portal
Login to Startup India portal and fill Form 1 for tax exemption under Section 80-IAC.
Inter-Ministerial Board Review
Your application is reviewed by the Inter-Ministerial Board of Certification. They may ask for additional documents.
Receive Certificate
Upon approval, you receive a certificate allowing you to claim 80-IAC exemption in your income tax returns.
Processing Timeline
The Inter-Ministerial Board typically takes 45-60 days to review and approve applications. Ensure all documents are complete to avoid delays.
Ongoing Compliance Requirements
Annual Compliance
- • File income tax return by due date (claiming 80-IAC)
- • Maintain separate books for eligible business
- • Ensure turnover remains below ₹100 crores
- • File audit report if turnover exceeds threshold
Declaration Requirements
- • Declare intention to claim exemption in ITR
- • Maintain certificate from IMB
- • Report any change in business activity
Record Keeping
- • Preserve IMB certificate
- • Maintain incorporation documents
- • Keep DPIIT recognition letter
- • Document all eligible business income