Startup India Corporate Tax Exemption (Sec 80IAC)

Startup India Corporate Tax Exemption under Section 80-IAC of the Income Tax Act is a major benefit provided to eligible startups in India. It allows recognized startups to claim a 100% tax exemption on profits for three consecutive financial years within their first ten years of incorporation. This exemption is designed to support startups in their early growth phase by reducing their tax burden and encouraging entrepreneurship.

To avail of the tax exemption, a startup must first obtain DPIIT (Department for Promotion of Industry and Internal Trade) recognition under the Startup India initiative. Only startups that meet specific eligibility criteria can apply for this benefit.

The startup must be incorporated as a Private Limited Company (PLC) or a Limited Liability Partnership (LLP). Partnership firms and other business entities are not eligible for this exemption.

The company must not be older than ten years from its incorporation date. If a company has been in operation for more than ten years, it cannot claim the tax benefit under Section 80-IAC.

The annual turnover of the startup must not exceed ₹100 crore in any financial year since its incorporation. If the turnover exceeds this limit, the startup loses eligibility for the exemption.

The startup should be engaged in innovation, development, or improvement of products, processes, or services, or it should have a scalable business model with high potential for employment generation and wealth creation.

The tax exemption applies only to profits derived from the eligible business activities of the startup. Other sources of income, such as capital gains, rental income, or interest income, are not covered under this exemption.

To claim the exemption, the startup must file an application with the Inter-Ministerial Board (IMB) for approval. The IMB evaluates whether the startup meets the innovation and scalability criteria before granting the tax exemption certificate.

Once approved, the startup can choose any three consecutive financial years within its first ten years of incorporation to claim the tax exemption. This flexibility allows startups to utilize the benefit when they start generating profits.

During the tax-exempt period, the startup does not have to pay corporate income tax, which significantly reduces financial stress and allows reinvestment of profits into business expansion.

If a startup fails to meet the eligibility criteria in any year, such as exceeding the turnover limit or undergoing restructuring, it may lose the tax exemption for that financial year.