Tax Holiday Under Section 80IAC
Tax Holiday Under Section 80IAC blogs.
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What is 80IAC ?
Section 80-IAC of the Income Tax Act provides 100% tax exemption on profits for
eligible startups for any 3 consecutive years out of the first 10 years from
incorporation.
It is aimed at encouraging innovation and entrepreneurship by easing the tax
burden on startups during their initial growth phase.
Benefits of Tax Holiday
a. 100% Income Tax Exemption on Profits
- Eligible startups can claim 100% tax deduction on profits earned during any 3 consecutive years out of their first 10 years of incorporation.
- This helps startups retain earnings for reinvestment and growth.
b. Cash Flow & Liquidity Support
- By saving on taxes, startups improve their cash reserves, which can be used for:
- Product development
- Hiring talent
- Marketing & expansion
- Operational stability
c. Encourages Innovation & Entrepreneurship
- The benefit is aimed at innovative startups working on:
- New products or services
- Technology-led solutions
- Scalable business models
d. Investor Confidence
- Recognized startups with 80-IAC benefits are more likely to:
- Attract funding from angel investors, VCs, etc.
- Be viewed as compliant and scalable
- Build a stronger valuation due to tax savings
e. Ease of Compliance
- DPIIT recognition is the only major requirement—no need for separate CBDT approval (as per latest updates).
- Filing the claim is integrated with Income Tax Return (ITR) filing.
f. Boosts Early-Stage Profitability
- Reduces the tax burden during the crucial early years, making startups financially stronger and more sustainable.
Eligibility for Tax Holiday
To claim the tax holiday under Section 80-IAC, a startup must:
- 1. Be recognized by DPIIT (Department for Promotion of Industry and Internal Trade).
- 2. Be incorporated on or after April 1, 2016, and before April 1, 2026.
- 3. Be a Private Limited Company or LLP.
- 4. Have turnover not exceeding ₹100 crores in any financial year since incorporation.
- 5. Be working towards innovation, development, deployment, or commercialization of new products, processes, or services.
- 6. Not be formed by splitting up or reconstructing an existing business.
- 7. Not be formed by transferring old plant or machinery.
Documents Required
To claim tax holiday under Section 80-IAC, the following documents are needed:
- 1. DPIIT Recognition Certificate
- 2. Incorporation Certificate of the company or LLP
- 3. PAN Card of the entity
- 4. Audited financial statements for relevant years
- 5. Income Tax Returns (ITR) for the relevant assessment years
- 6. Board resolution opting for the 80-IAC benefit
- 7. Details of nature of innovation and product/service offered
- 8. CA-certified report showing calculation of profit eligible for exemption
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