{"id":14042,"date":"2026-05-27T07:36:49","date_gmt":"2026-05-27T07:36:49","guid":{"rendered":"https:\/\/lemonn.co.in\/blog\/glossary\/section-80iac\/"},"modified":"2026-05-27T07:36:49","modified_gmt":"2026-05-27T07:36:49","slug":"section-80iac","status":"publish","type":"glossary","link":"https:\/\/lemonn.co.in\/blog\/glossary\/section-80iac\/","title":{"rendered":"Section 80IAC: Startup Tax Holiday Under the Income Tax Act"},"content":{"rendered":"

India’s startup ecosystem has grown dramatically over the past decade, and the government has actively supported this growth through tax<\/a> incentives. Section 80IAC is the primary income tax<\/a> provision that gives eligible startups a three-year tax holiday. If you run a DPIIT-recognised startup, this section could save you significant tax during the critical early years of your business.<\/p>\n

What is Section 80IAC?<\/h2>\n

Section 80IAC of the Income Tax Act<\/a> provides a 100% deduction on profits and gains of an eligible startup for three conse<\/a>cutive assessment years, out of the first ten years of the startup’s incorporation.<\/p>\n

In practical terms, this means that an eligible startup pays zero income tax on its profits for three years of its choice within its first ten years of existence.<\/p>\n

Who Qualifies as an Eligible Startup?<\/h2>\n

To claim Section 80IAC benefits, the startup must meet all of the following:<\/p>\n

– It must be incorporated as a company or a Limited Liability Partnership (LLP) in India.
\n– The date of incorporation must be between April 1, 2016 and March 31, 2025 (this date has been extended annually).
\n– The entity must be recognised by the Department for Promotion of Industry and Internal Trade (DPIIT) as a startup.
\n– It must not have been formed by splitting or reconstructing an existing business.
\n– Turnover must not have exceeded Rs. 100 crores in any of the previous years for which the deduction is being claimed.<\/p>\n

DPIIT Recognition and IMB Approval<\/h2>\n

DPIIT recognition is applied for through the Startup India portal. However, simply being DPIIT-recognised does not automatically qualify you for Section 80IAC. The startup must additionally receive approval from the Inter-Ministerial Board of Certification (IMB), which evaluates whether the startup is genuinely innovative.<\/p>\n

The IMB approval process has been streamlined in recent years, with the government issuing auto-approval for many startups meeting the criteria.<\/p>\n

How the Three-Year Deduction Works<\/h2>\n

The startup can choose any three consecutive years out of its first ten years. This flexibility allows a startup to time the deduction when profits are highest, rather than using it in the early loss-making years when it provides little benefit.<\/p>\n

For example, if a startup is incorporated in FY 2020-21 and starts making significant profits from FY 2024-25, it can choose FY 2024-25, FY 2025-26, and FY 2026-27 as its three deduction years.<\/p>\n

Minimum Alternate Tax (MAT) Still Applies<\/h2>\n

One important caveat: Section 80IAC does not exempt a startup from Minimum Alternate Tax (MAT) under Section 115JB. MAT is levied at 15% on book profits, even if the startup pays zero tax under the regular computation due to the Section 80IAC deduction. MAT credit can be carried forward and set off against regular tax in future years, but the upfront cash outflow remains.<\/p>\n

Qualifying Business<\/h2>\n

The startup must be engaged in a business that involves innovation, development, deployment, or commercialisation of new products, processes, or services. The business must not be in the following ineligible activities: real estate development, gold financing, farming, or businesses where intellectual property is not involved.<\/p>\n

Practical Example<\/h2>\n

NovaTech LLP is incorporated in June 2021, receives DPIIT recognition, and receives IMB approval. It starts turning a profit from FY 2025-26. The LLP declares Section 80IAC for FY 2025-26, FY 2026-27, and FY 2027-28. During these three years, it claims a 100% deduction on profits, effectively paying zero income tax on those years’ earnings (subject to MAT).<\/p>\n

Key Takeaways<\/h2>\n

– Section 80IAC provides a 100% tax deduction on startup profits for three consecutive years out of the first ten years.
\n– The startup must be DPIIT-recognised and receive IMB approval.
\n– Must be a company or LLP incorporated between April 1, 2016 and March 31, 2025.
\n– Annual turnover must not exceed Rs. 100 crores in any year the deduction is claimed.
\n– The startup can choose which three consecutive years to apply the deduction.
\n– MAT at 15% of book profits still applies even during the tax holiday years.<\/p>\n

Section 80IAC is a genuine and valuable benefit for qualifying startups. Applying for DPIIT recognition and IMB approval early is an important step for any eligible startup that expects to be profitable.<\/p>\n","protected":false},"excerpt":{"rendered":"

India’s startup ecosystem has grown dramatically over the past decade, and the government has actively supported this growth through tax incentives. Section 80IAC is the primary income tax provision that gives eligible startups a three-year tax holiday. If you run a DPIIT-recognised startup, this section could save you significant tax during the critical early years […]<\/p>\n","protected":false},"author":3,"featured_media":0,"menu_order":0,"template":"","meta":{"_uag_custom_page_level_css":"","footnotes":""},"class_list":["post-14042","glossary","type-glossary","status-publish","hentry"],"blocksy_meta":[],"uagb_featured_image_src":{"full":false,"thumbnail":false,"medium":false,"medium_large":false,"large":false,"1536x1536":false,"2048x2048":false,"web-stories-poster-portrait":false,"web-stories-publisher-logo":false,"web-stories-thumbnail":false},"uagb_author_info":{"display_name":"Team Lemonn","author_link":"https:\/\/lemonn.co.in\/blog\/author\/ashu\/"},"uagb_comment_info":0,"uagb_excerpt":"India’s startup ecosystem has grown dramatically over the past decade, and the government has actively supported this growth through tax incentives. Section 80IAC is the primary income tax provision that gives eligible startups a three-year tax holiday. If you run a DPIIT-recognised startup, this section could save you significant tax during the critical early years…","_links":{"self":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary\/14042","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary"}],"about":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/types\/glossary"}],"author":[{"embeddable":true,"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/users\/3"}],"version-history":[{"count":0,"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary\/14042\/revisions"}],"wp:attachment":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/media?parent=14042"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}