Overview:

Section 80-IAC of the Income Tax Act provides tax exemptions to eligible startups that are certified by the Department for Promotion of Industry and Internal Trade (DPIIT), Government of India. This certification allows qualifying startups to enjoy 100% tax exemption on profits for the first three years of operation.

Eligibility Criteria:

To qualify for the tax exemption under Section 80-IAC, a startup must meet the following conditions:

Certification by DPIIT

The startup must be recognized by the Department for Promotion of Industry and Internal Trade (DPIIT).

This recognition certifies the startup as an eligible entity for availing benefits under Section 80-IAC.

Type of Entity

The business must be a Private Limited Company, Limited Liability Partnership (LLP), or Partnership Firm.

The entity must be incorporated in India.

Age of the Business

The business must be less than 10 years old from the date of incorporation to be eligible for the tax exemption.

Turnover Criteria

The annual turnover of the startup should be less than ₹100 Crores in any given financial year.

Innovative and Scalable Business

The startup must be engaged in an innovative and scalable business model that aims at generating employment or creating wealth.

The business should focus on technology-driven solutions or address societal needs through innovation.

Not Derived from Investments or Financial Sector

The business should not be engaged in activities related to real estate or financial services, and must not be formed by splitting or reconstructing an existing business.

Incorporation and Setup

The company or LLP should have been incorporated between April 1, 2016, and March 31, 2022. (For newly set-up businesses).

No Tax Exemption for Non-Qualifying Activities

If the business does not meet the innovation criteria or is involved in activities like manufacturing of non-tech products or any non-eligible activities, it will not qualify for the exemption.

Benefits Under Section 80-IAC:

• 100% Tax Exemption on Profits for the first 3 years from the date of incorporation (subject to conditions).
• No Minimum Alternate Tax (MAT) will be applicable for these startups.
• The tax holiday is available only for the first 10 years from incorporation, starting from the year of recognition by DPIIT.
• Documents Required for Section 80-IAC Application:
  DPIIT Recognition Certificate
• Incorporation Certificate of the Company/LLP/Partnership Firm
• PAN Card of the Company/LLP/Partnership Firm
• Copy of Financial Statements for the past 3 years (if applicable)
• Copy of Income Tax Returns
• Business Model or Project Report
• Letter from the company indicating the innovative nature of the business
• Company’s or LLP’s financial status (annual turnover)