DPIIT Tax exemption 80 IAC

Startup India: Eligibility, Tax Exemptions and Incentives

The DPIIT Tax Exemption under Section 80-IAC is a benefit provided to eligible startups in India as part of the Startup India initiative. This exemption allows startups to avail of a 100% tax deduction on profits for a specified period, thereby reducing their tax burden and allowing them to focus on business growth.

Get Free Consultation

Name

Company

Phone

Select Service

Message

What is Section 80-IAC of the Income Tax Act?

Section 80-IAC of the Income Tax Act, 1961 is a provision introduced by the Indian government to promote entrepreneurship and innovation by offering income tax exemptions to eligible startups. This tax exemption allows startups to focus on growth and development by reducing their tax liabilities during the initial stages of their operations.

Eligibility for Section 80-IAC Exemption

To be in compliance with Section 80-IAC of the Income-tax Act of 1961, the following requirements must be met.
- A limited liability partnership (LLP) or a company engaged in an eligible business is the assessee. An eligible start-up business is one that innovates, develops, or improves products, processes, or services, or that uses a scalable business model that can generate significant wealth or jobs. The specific business or limited liability partnership must be created between March 31, 2016, and April 1, 2025.
- The LLP’s or company’s annual business turnover in the year prior to the assessment year does not exceed Rs. 100 Crore, for which section 80-IAC deductions are claimed.
- A pre-existing business is not divided up or reformed to form a corporation or LLP. However, this clause does not apply to a start-up that results from the resumption of operations of any undertaking that was abandoned in a prior year due to significant damage or destruction of any building, machinery, plant, or furniture owned by the assessee and used for the purpose of such business by a natural disaster or other unforeseen circumstances (such as a riot, civil disturbance, accidental fire, or war).
- Transferring equipment or machinery that was already in use for any purpose to a new enterprise does not establish it.
- The Department of Industrial Policy and Promotion (DIPP), the Ministry of Commerce and Industry, and the Government of India ought to recognise the startups.
- The startup must have an appropriate business certificate from the Inter-Ministerial Board of Certification, which the Indian Central Government published in the Official Gazette.
- Startups work on the creation, development, or enhancement of goods, procedures, services, or scalable business models with the potential to create large amounts of money and jobs.
The Income-tax Act, 1961 states that to determine the deduction under Section 80-IAC, the gains and profits of the eligible business must be calculated as though those enterprises were the assessee’s only source of income in the preceding years.

Benefits of Section 80-IAC for Startups

It is simple to claim deductions under the Income Tax Act of 1961 Section 80-IAC. Startups don’t have to pay any government fees to file an uncomplicated online application. More startups are encouraged to take advantage of this tax exemption as a result of the ease with which the compliance procedure can be streamlined.
For each of the three consecutive assessment years, the total of the deductions allowed by Section 80-IAC of the Income-tax Act, 1961 is 100% of the earnings and gains realised by the qualified business.
Since there would be no tax due for that year, there is no need to pay advance tax. This section’s deductions enable entrepreneurs to address the tax burden they often face in their early stages of business. The act eases startup financial strain by lowering taxable income, allowing them to use resources more wisely.

Step-by-Step Process to Claim Deduction under Section 80IAC

The qualified assessee must apply for the certificate from the Inter-Ministerial Board of Certification to be able to claim the deduction under Section 80-IAC. The procedures for requesting the certificate are as follows:

Step 1: To begin with, you must sign into the Startup India website. You next need to apply for the DPIIT recognition certificate by going through the Startup India registration process step-by-step on the screen.

Step 2: Choose “claim tax exemption” and provide the following information on the form:

Startup name
Nature of business (Limited Liability Partnership) or Private Limited Company)
Address and location
Contact details (PAN, E-mail ID, and phone number of entity)
Incorporation/registration number
Date of incorporation
DIPP number

Step 3: A startup that chooses to take advantage of 80IAC deductions must provide the necessary paperwork in PDF format:

Memorandum of association if PLC
Limited liability partnership deed if LLP
Board Resolution (if any)
Financial statements covering the last three years or every year since the company’s founding
Profit and loss statements and a balance sheet approved by CA
Filed income tax returns from the date of incorporation or for the previous three years
Provide a link to the startup’s video pitch and PDF pitch deck

If a startup additionally possesses an angel tax exemption certificate, it must submit that certificate along with the previously specified documentation.