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Startups · MSMEStartup tax exemption under Section 80-IAC: eligibility and conditions
An eligible start-up can claim 100% deduction of profits for any three consecutive years out of its first ten under Section 80-IAC – now Section 140 of the Income-tax Act, 2025. Here is who qualifies, how to get the IMB certificate and how to choose the best three years.
Section 80-IAC of the Income-tax Act, 1961 – carried into the Income-tax Act, 2025 as Section 140 – gives a profit-linked tax holiday to eligible start-ups.
Eligibility conditions
| Condition | Requirement |
|---|---|
| Entity | Private limited company or LLP |
| Incorporation | On or after 1 April 2016 and before 1 April 2030 (extended by Budget 2025) |
| Turnover | Up to ₹100 crore in the year of claim |
| Recognition | DPIIT recognition as a start-up |
| IMB certificate | Certificate of eligible business from the Inter-Ministerial Board |
| Not formed by | Splitting or reconstruction of an existing business, or transfer of used plant and machinery beyond 20% |
The deduction
- 100% of profits of the eligible business.
- For any 3 consecutive years out of the first 10 years from incorporation.
- Choose years when profits are expected to be highest.
Applying to the IMB
- Obtain DPIIT recognition.
- Apply on the Startup India portal for 80-IAC certification with: audited financials, ITRs, business plan, details of innovation, IP, revenue model, funding, employment.
- Respond to IMB queries; presentations may be requested.
- Certificate issued if the business is innovative and scalable.
Approval rates are selective; a strong application explaining technology, IP and revenue traction matters.
Worked example
Example: AgriSense Labs Pvt Ltd (incorporated April 2026, DPIIT-recognised, IMB certificate obtained in 2028) projects:
| Tax Year | Profit before deduction |
|---|---|
| 2026-27 | Loss ₹40 lakh |
| 2027-28 | Loss ₹15 lakh |
| 2028-29 | ₹30 lakh |
| 2029-30 | ₹1.2 crore |
| 2030-31 | ₹2.5 crore |
| 2031-32 | ₹3.5 crore |
| 2032-33 | ₹4 crore |
Best block: 2030-31 to 2032-33 (₹2.5 + ₹3.5 + ₹4 crore = ₹10 crore of profit exempt), saving about ₹2.5 crore of tax at 25.17% (subject to MAT). Earlier years' losses can be set off in 2028-29 and 2029-30 before the holiday – and Section 79 relaxation protects losses if shareholding changes while original shareholders continue.
MAT and other points
- Companies claiming 80-IAC may still pay MAT on book profits; under Budget 2026 proposals, MAT is 14% and treated as a final tax without fresh credit from 1 April 2026, as reported – this reduces the value of the holiday for companies.
- LLPs are not subject to MAT but pay AMT (alternate minimum tax) where applicable on profit-linked deductions.
- The 22% regime under Section 115BAA cannot be combined with 80-IAC.
- Claim requires the return to be filed by the due date and accounts audited.
Common mistakes
- Assuming DPIIT recognition alone gives the tax holiday.
- Choosing early loss years for the 3-year block.
- Claiming 80-IAC while opting for 115BAA.
- Missing the incorporation deadline or turnover cap.
Key takeaway
Section 80-IAC (Section 140) can exempt three years of profits, but needs DPIIT recognition, an IMB certificate and smart choice of years – with MAT in mind for companies. Our startup and company team prepares IMB applications and tax-holiday planning.
Official references
Provisions discussed (summaries in our Law Library):
- Income-tax Act, 2025 – Section 140 (corresponds to 80-IAC): Deduction – eligible start-ups
- Income-tax Act, 1961 – Section 80-IAC (corresponds to 140): Deduction – eligible start-ups
Official sources to verify the current text, notifications and circulars:
Frequently asked questions
Who is eligible for the 80-IAC deduction?
A DPIIT-recognised private company or LLP incorporated on or after 1 April 2016 and before 1 April 2030, with turnover not exceeding ₹100 crore in the year, holding a certificate of eligible business from the Inter-Ministerial Board (IMB).
How long is the tax holiday?
100% of profits for any 3 consecutive assessment years out of the first 10 years from incorporation, at the start-up's choice.
Does MAT apply to a start-up claiming 80-IAC?
For companies, minimum alternate tax on book profits can still apply. Budget 2026 changes to MAT (rate and treatment as final tax, as reported) should be considered when planning.
Are partnership firms eligible?
Registered partnership firms can get DPIIT recognition, but 80-IAC is available only to companies and LLPs.
Can a start-up claim 80-IAC without being profitable?
The deduction is on profits; it has value only in profitable years. Choose the 3-year block to coincide with expected profits.
Is the IMB certificate a one-time approval?
Yes, once granted it applies for the eligible period, subject to continuing conditions like turnover limits.
Can 80-IAC be claimed in an updated or belated return?
The deduction generally requires the return to be filed by the due date; belated returns risk denial.
This article is general information on the law as on 10 November 2026, written for educational purposes. It is not professional advice for your case. Section numbers under the Income-tax Act, 2025 should be confirmed with the official section mapping on the Income Tax Department website before use in filings.
Have a tax, GST or business question?
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