Tax Incentives for New Start-ups section 80-IAC

Tax Incentives for New Start-ups: Section 80-IAC

Section 80-IAC of the Income Tax Act was enacted by the government of India to encourage the growth of start-ups and to provide newly founded enterprises with a fair chance to succeed in India’s cutthroat commercial environment.

According to Section 80-IAC, a qualified start-up can deduct a sum equal to 100 percent of its revenues and gains. This provision was originally enacted as part of the Finance Act of 2016, with the purpose of encouraging entrepreneurs to create new jobs, and was subsequently changed as part of the Finance Bill of 2018.

In order to qualify for the deductions provided by this section, a start-up must have been in operation for at least three consecutive assessment years out of a total of seven (five until the assessment year 2017-18). With the introduction of the new Section 80-IAC, the government hopes to give a helpful incentive for start-ups and boost their growth in the early stages of business.

For this reason, an eligible start-up may deduct the whole amount of its profits and gains from a qualified firm for any three consecutive assessment years within the five years commencing with the year in which the start-up was established.

Here we take a quick look at the Act’s Section 80-IAC, which provides tax breaks for Indian start-ups.


Requirements for Tax Incentives

Any start-up meeting the requirements below is qualified to receive the incentives described below.


The incentive would be available to start-ups incorporated on or after April 1, 2019, and before April 1, 2021, for the assessment year 2018-2019. Start-ups formed between April 1st, 2016, and April 1st, 2019 were eligible for the benefit up until the 2017–2018 assessment year.

Incorporation and Turnover

To get the benefit provided by this provision, the following requirements must be met:

  • If the firm is a Limited Liability Partnership (LLP) or a corporation.
  • If the total turnover of the firm does not exceed INR 20 Crores in any of the preceding years commencing on or after April 1, 2016, and ending on March 31, 2021, then the business is exempt.

Taxpayers should be aware that the condition that the company’s annual revenue does not exceed INR 25 Crores applies to the seven years preceding the date of incorporation. In addition, the start-up’s annual revenue cannot exceed the prescribed maximum of INR 25 Crores for the year in which it claims the 100% deduction.

Nature of the business

The enterprise is engaged in an eligible business involving innovation, improvement of goods or development of processes or services, or a scalable business model with a high potential for employment generation or wealth creation, deployment, or commercialization of new products, processes, or services driven by technology or intellectual property.

Structure of the Incorporation

The start-up shouldn’t be created through the dissolution or reconstruction of an existing company. Start-ups that are the result of the assessee re-establishing, reconstructing, reviving, or reconstructing the business of any such undertaking under the conditions and within the time frame set forth in Section 33B are exempt from this requirement.

Machinery and Equipment

No pre-existing equipment or facilities should be employed in the formation of the company. However, if the following conditions are met, machinery utilised outside of India by a person other than the assessee will not be considered machinery or plant used prior for any purpose:

  • Where there is no record of the equipment or machinery having been used in India prior to the date of installation by the assessee.
  • It is if the machinery or plant is imported into India.
  • In determining the total income of any individual for any period prior to the date of installation of such machinery or plant, the assessee is not entitled to or has been permitted to take any deduction on account of depreciation with respect to such machinery or plant under the provisions under the Income Tax Act of 1961.

In addition, the whole value of any machinery, plant, or part thereof that was previously utilised for the purpose was transferred to the new business in the case of a start-up. This percentage shouldn’t go higher than 20% of the entire cost of the company’s machinery and plant. As such, it will be considered to have been founded notwithstanding the fact that the requirement required that it not be formed by the transfer to a new business of plant and machinery employed for any purpose.


A valid certificate of eligibility from the Inter-Ministerial Board, as published in the Official Gazette by the Indian Central Government, must be held by the start-up in question:

  • Where “eligible business” refers to a business that innovates, deploys, develops, or commercialises new products, services, or processes that are powered by technology or intellectual property.
  • Where “eligible start-up” refers to a corporation or limited liability partnership engaging in an eligible business that meets the following requirements.
  • Where “limited liability partnership” refers to a partnership described in clause (n) of subsection (1) of section 2 of the Limited Liability Partnership Act of 2008, as specified (6 of 2009).


Eligibility Criteria for incentives

Only Income from Eligible Business Will Be Taxed

According to the Income Tax Act, for purposes of calculating the deduction under this section, the gains and profits of the qualified business shall be estimated as if such businesses were the assessor’s only source of income throughout the relevant prior years.

Audit of Accounts

The deduction shall only be permitted if a chartered accountant has audited the start-up’s accounts for the preceding year and the assessee submits the audit report in the required format, fully signed and certified by a chartered accountant, together with his income tax return.

Transfer of Goods/Services between an Eligible Enterprise and Another Enterprise

For any products or services held for the qualified business that is transferred to another business conducted by the assessor, or vice versa. Also, if the consideration for the transfer does not equate to the fair market value of the goods or services, the business’s profits and gains are computed as if the transfer were made at fair market value. Nonetheless, if, in the Assessing Officer’s opinion, such computation presents unusual problems, the Assessing Officer may compute the profits on whatever reasonable basis the Officer deems appropriate.

Deduction limited to the Profits of Eligible Businesses

The deduction requested and approved under this clause cannot exceed the business’s profits and gains. In addition, if the deduction is requested and authorised under this section for any assessment year, no other section of this chapter will enable a deduction with respect to the same profits.

Assessing Officer with the Authority to Make Modifications

The Assessing Officer is authorised to make modifications when calculating the profit and profits of an eligible business based on the transaction’s realistic profit potential. This is the situation if the transaction between the assessor carrying on an eligible trade or business under Section 80-IAC and any other person is so structured as to produce excessive profits for the eligible trade or company. Nonetheless, if the arrangement comprises a defined domestic transaction referred to in Section 92BA, the number of gains from such transaction must be evaluated with reference to the arm’s-length price.

Central Government Accreditation

If the central government believes that certain types of start-ups are exploiting the Act’s provisions for their own benefit, it can decide to revoke the deduction for those businesses. Any category of a start-up may be excluded from this deduction at the discretion of the Central Government. The refusal of exemption will take effect as of the date published in the official gazette notice.

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