Overview
Section 80-IAC of the Income Tax Act, 1961, was introduced to encourage the area of innovation and entrepreneurship in India. It provides a 100% tax holiday for the three consecutive years to eligible startups recognized by the Department for Promotion of Industry and Internal Trade (DPIIT). This incentive helps startups reduce their financial burden during the initial years of business, allowing them to focus on growth and innovation.
Why 80-IAC Registration?
- Tax Exemption: Eligible startups can enjoy complete income tax exemption for three years out of ten years from the date of incorporation.
- Boost to Cash Flow: Tax savings help improve liquidity, which can be reinvested in business expansion.
- Government Support: Recognition as an innovative startup fosters credibility with investors, banks and other stakeholders.
- Encourages Entrepreneurship: Reduces financial pressure, enabling entrepreneurs to take bold steps.
Eligibility for 80-IAC Registration
To avail of 80-IAC benefits, a startup must:
- Be incorporated as a Private Limited Company or Limited Liability Partnership (LLP).
- Be recognized as a Startup by DPIIT.
- Have been incorporated on or after 1st April 2016 but before 1st April 2030.
- Not be formed by splitting up or reconstructing an existing business (with limited exceptions under Section 33B).
- Be engaged in innovation, development, improvement of products/processes/services or have a scalable business model with potential for wealth creation and employment.
Process of 80-IAC Registration
1. DPIIT Recognition:
- Apply for Startup Recognition through the Startup India portal.
- Submit incorporation documents and other required details.
2. Application for 80-IAC Exemption:
- File an application through the DPIIT portal for tax exemption.
- Upload necessary documents and business details.
3. Evaluation by IMB (Inter-Ministerial Board):
- The IMB evaluates the application and supporting documents.
- On approval, the startup receives a certificate of eligibility under Section 80-IAC.
Documents Required
- Certificate of Incorporation (Company/LLP).
- PAN of the entity.
- DPIIT Recognition Certificate.
- Memorandum of Association/LLP Agreement.
- Board resolution/authorization letter.
- Business Plan highlighting innovation and scalability.
- Financial Statements, data and Income Tax Returns. (if applicable)
- Details of the nature of business and innovation.
- Pitch deck/startup video link (recommended).
Benefits of 80-IAC Registration
- 100% tax holiday for 3 years out of 10 years.
- Improved investor confidence due to government recognition.
- Stronger financial position during the early growth phase.
- Encourages innovation by reducing initial financial pressure.
- Boosts credibility with stakeholders such as banks and clients.
Fee for 80-IAC Registration
- Government Fee: No government fee is charged for applying for DPIIT recognition or 80-IAC exemption.
- Professional/consultancy charges: It may apply if using service providers.
Timeline for 80-IAC Registration
- DPIIT Recognition: Typically, 2–4 weeks (subject to approval).
- 80-IAC Exemption Certificate: Processed within 120 days (≈4 months) of submission of complete documents and IMB approval.
FAQs
Yes. A startup can select any 3 consecutive financial years out of the first 10 years from incorporation. This flexibility helps claim the exemption in years when profits are higher.
No. The benefit applies only when the startup has positive profits. If there are losses, the startup can defer claiming the exemption to later profitable years (within the 10-year limit).
No special tax advantage is given. However, being DPIIT-recognized and approved under 80-IAC adds credibility with investors, as it reduces the startup’s future tax liability.
The IMB, comprising representatives from DPIIT, DBT and other ministries, reviews applications to ensure the startup is genuinely innovative and meets the eligibility conditions before granting approval.
No. The exemption applies only to profits derived from the eligible business. Income from the other sources such as interest, rental income or unrelated activities remains taxable.
Generally, no. Pure trading or reselling businesses are not considered innovative. However, if such startups demonstrate clear process innovation or technology integration, they may be considered.
The eligibility for 80-IAC benefits depends on whether the merged or acquired entity continues to meet all conditions. If turnover, structure or innovation criteria are not satisfied post-merger, benefits may be lost.
No. The application must be made within 10 years of incorporation. After this period, the startup loses eligibility.
Yes. Startups older than one year must submit CA-certified audited financial statements and income tax returns to prove compliance and turnover levels.
- Lack of clear proof of innovation or scalability in the business plan.
- Turnover exceeding ₹100 crore.
- Incorrect or incomplete documentation.
- Business formed by restructuring an existing entity.
- Application filed beyond the eligibility window.
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