In Finance Act 2016, Section 80-IAC of Income Tax Act was introduced to promote start-ups by providing an incentive to boost their growth in the early stages of their business. Sec 80 IAC provides tax holiday for start-ups for three consecutive years out of the first ten years after incorporation.

Eligibility

Startups incorporated as Company or LLP during the period 1.4.2016 to 31.3.2023(new Amendment), engaged in

• Innovation, development or improvement of products or processes or service
• A scalable business model with a high potential of employment generation or wealth creation.

Quantum & Time Frame of Deduction

A deduction of 100% of the profits and gains of the eligible start-up.

Deduction is allowed for any three consecutive assessment years out of ten years beginning from the year in which the eligible start-up is incorporated.

Conditions to be fulfilled

• Turnover:

Total turnover of the startup should not exceed 100 crores in the P. Y relevant to the A.Y for which deduction is claimed.

• Tax Exemption Certificate:

Eligible startups need to get Tax Exemption Certificate from IMBC under the Department of Promotion of Industry and Internal Trade.

• Incorporation:

Eligible startup is not formed by splitting up, or the reconstruction, of a business already in existence.

• Plant & Machinery:

Eligible Startup is not formed by the transfer of machinery and plant previously used for any purpose.
However, it will be considered as the condition satisfied if Plant & Machinery used for any purpose transferred to eligible startup does not exceed 20% of the total value of the Plant & Machinery used in the Business.

• Plant & Machinery used outside India:

Any Plant & Machinery which was used outside India by any person other than the assessed will not be considered as previously used for any purpose. if

1. Such Plant & Machinery was not used in India before the date of the installation by the Eligible startup.
2. Such Plant & Machinery is imported into India.
3. No Depreciation on such Plant & Machinery was claimed by any person for any period prior to the date of the installation by the startup.

• Audit of accounts:

Eligible Startup needs to do tax audit by a practicing Chartered Accountant for claiming the deduction.

How to apply

• Obtain “Start-up” recognition from DPIIT
• Register on the “Start-up India Portal” (startupindia.gov.in) after being recognized by DPIIT for Tax Exemption