Section 80-IAC of the Income Tax Act offers eligible start-ups a 100% income tax exemption for three consecutive years out of the first ten years of incorporation.
Budget 2025 has extended the benefit window till March 31, 2026, giving more start-ups a chance to claim this powerful tax break.
Is it worth pursuing 80-IAC status? What are the pros and hidden challenges?
This blog explains everything founders and CFOs need to know.
Legal Reference
- Section 80-IAC, Income Tax Act, 1961
- Budget 2025 extends eligibility for incorporation up to March 31, 2026
- Administered by CBDT (Central Board of Direct Taxes)
What is Section 80-IAC?
Eligible start-ups can claim 100% tax exemption on profits for any 3 consecutive years out of their first 10 years of incorporation.
Exemption is allowed only after obtaining CBDT approval based on DPIIT-recognized start-up status.
Eligibility Criteria for 80-IAC (FY 2025–26)
- Must be a private limited company or LLP incorporated after April 1, 2016 but before March 31, 2026
- Turnover must not exceed ₹100 crore in any financial year
- Entity must hold valid DPIIT Start-Up Recognition
- Entity must be engaged in innovation, development, improvement, or scalable business model with potential employment generation or wealth creation
- Application in Form 1 must be filed with CBDT
Example: How 80-IAC Saves Tax
Company Alpha Pvt Ltd:
- Incorporated in 2022, turnover ₹3 crore, net profit ₹1 crore in FY 2025–26
- Applies for and obtains 80-IAC approval
- Pays zero income tax on ₹1 crore profit for three years
- Estimated tax saving = ₹25 lakh–₹30 lakh over three years
Process to Claim Section 80-IAC Benefit
- Obtain DPIIT Start-Up Recognition
- File application with CBDT for Section 80-IAC approval
- Upload supporting documents like:
- Pitch deck
- Innovation explanation
- Financial projections
- Incorporation certificate
- Await approval from the Inter-Ministerial Board (IMB)
- After approval, claim exemption while filing your ITR for the relevant year
Important Points to Note
- 80-IAC exemption can be availed only for profits (loss-making start-ups must choose profitable years carefully)
- Once years are chosen, they cannot be changed later
- Regular compliance with tax filings, audits, and DPIIT updates is mandatory
- If conditions are violated, exemption may be withdrawn retrospectively
Challenges in Availing 80-IAC
- Long waiting period for CBDT approval
- Strict scrutiny of innovation claims by IMB
- Complex documentation and business model justification
- No retrospective benefit if exemption is not timely applied
Conclusion
With the deadline now extended till March 31, 2026, Section 80-IAC remains a highly valuable tax benefit for serious start-ups.
However, it requires early planning, proper documentation, and regulatory patience. Founders expecting profitability within the 10-year window must act fast to lock in this tax-free advantage.
Call to Action and Disclaimer
Need help applying for 80-IAC or navigating DPIIT and CBDT approvals?
Schedule a meeting with our Chartered Accountant, Anshul Goyal, by visiting:
Disclaimer: I am Anshul Goyal, a Chartered Accountant licensed with ICAI, India. This blog is for informational purposes only and does not replace customized professional advice.
Frequently Asked Questions
1. Can LLPs claim 80-IAC benefits?
Yes, both Private Limited Companies and LLPs are eligible.
2. Can a start-up claim 80-IAC after 6 years of incorporation?
Yes, as long as it is within the first 10 years of incorporation.
3. Is it mandatory to have profits to claim 80-IAC?
Yes. Only profits can be exempted. If there are no profits, exemption is not utilized.
4. Can DPIIT recognition alone grant 80-IAC benefits?
No. Separate application to CBDT is necessary.
5. What if I miss filing Form 1?
You cannot claim 80-IAC benefit retroactively without valid approval.