Startup India and 80 IAC: Tax Benefits Explained

How DPIIT recognition works and how eligible startups can claim a full tax exemption for three years.

The Startup India programme offers real, measurable benefits, and the biggest of them is the income tax exemption under section 80 IAC. Here is how it works and who can claim it.

Step one: DPIIT recognition

Before any benefit, your startup must be recognised by the Department for Promotion of Industry and Internal Trade. To qualify you must be incorporated as a Private Limited Company, an LLP or a Partnership Firm, be less than ten years old, have annual turnover under one hundred crore rupees, and be working towards innovation or improvement of products and services.

What DPIIT recognition gives you

• Self certification under several labour and environment laws
• Faster processing and rebates on patents and trademarks
• Access to government backed funds and investor networks
• Eligibility for public procurement tenders

Step two: the 80 IAC exemption

Section 80 IAC allows an eligible startup to claim a deduction of one hundred percent of its profits for three consecutive years out of its first ten years. You choose which three years to claim, which is useful because most startups are not profitable in the early years.

How to claim it

The application is made to the inter ministerial board with your incorporation details, financials and a note on the innovation in your business. DPIIT recognition is a prerequisite, so it must be in place first.

Is it worth it

There is no government fee for DPIIT recognition, and the potential tax saving over three profitable years can be substantial. For most eligible startups the answer is a clear yes.