80-IAC of the Income Tax Act

Introduction to Section 80-IAC

Section 80-IAC of the Income Tax Act, 1961, offers significant tax incentives to eligible startups in India, fostering innovation and entrepreneurship.
This provision allows qualifying startups to claim a 100% tax deduction on profits for three consecutive assessment years within the first ten years of incorporation.

Purpose of Section 80-IAC

Support Early-Stage Growth

By providing tax relief during the formative years, it enables startups to reinvest profits into business expansion and development.

Encourage Innovation

Promotes the creation and improvement of products, services, and processes, contributing to a dynamic entrepreneurial ecosystem.

Generate Employment and Wealth

Supports scalable business models to boost job creation and economic growth.

Benefits of Section 80-IAC

1-100% Tax Exemption on Profits:

– Eligible startups can avail a 100% tax exemption on profits and gains derived from their business for three consecutive assessment years out of the first ten years from the date of incorporation.

– Startups have the flexibility to choose any three consecutive assessment years within the initial ten-year period.

2-Enhanced Cash Flow:

– By reducing the tax liability, startups can retain more cash within the business.

– The savings on tax can be reinvested into the business for growth and scaling operations.

3-Encouragement for Innovation and Development:

– Encourages investment in R&D activities, leading to innovation.

– Promotes startups engaged in innovation and technological advancements.

4-Attracting Investment:

– Tax benefits make startups more attractive to investors.
– Enhanced profitability can lead to better valuations and funding opportunities.

5-Support for Early-Stage Growth:

– Provides a financial cushion for early-stage startups.
– Helps mitigate financial risks and ensures stability during the initial years.

6-Boost to Economic Development:

– Startups contribute significantly to job creation and wealth generation.

7-Compliance and Recognition:

– Startups availing of Section 80-IAC benefits gain formal recognition and credibility.
– Ensures adherence to high standards of transparency and governance.

Eligibility Criteria for Section 80-IAC

Incorporation Period

The startup must be incorporated between April 1, 2016, and March 31, 2024.

Legal Structure

The entity should be registered as a Private Limited Company or a Limited Liability Partnership (LLP).

Turnover Limit

Annual turnover should not exceed ₹100 crore in any of the previous financial years.

Nature of Business

Must engage in innovation, development, or improvement of products, processes, or services, or have a scalable business model.

Certification

Must hold a certificate from the Inter-Ministerial Board of Certification.

Application Process for Section 80-IAC Exemption

1-DPIIT Recognition:

– Register on the Startup India portal to obtain recognition from the Department for Promotion of Industry and Internal Trade (DPIIT).

Application Submission:

– Log in to the Startup India portal and apply for tax exemption under Section 80-IAC by providing necessary details and uploading required documents.

2-Documentation:

– Submit documents such as the Certificate of Incorporation, Memorandum of Association or LLP Deed, financial statements, Income Tax Returns, and a pitch deck.

3-Approval:

– The Inter-Ministerial Board will review the application and documents. Upon satisfaction, the tax exemption certificate will be granted.