Claim Section 80 IAC Tax Exemption for Startups

DPIIT-recognized startups in India have the option to save lacs, even crores in Taxes! Section 80 IAC of the Income Tax Act, is the provision that allows recognised startups to get a 100% tax exemption for 3 consecutive profit making years. This can be said to be one of the most important benefits of startup India registration. You might recall the pitch of Neomotion by Neomotion Assistive solutions LLP in Shark Tank India, they are one of the many startups that have been able to successfully claim this tax exemption. 

What is section 80IAC of the Income Tax Act? 

Section 80IAC of the Income Tax Act 1961 is a special section in respect of the specified business. It came into effect on 1st April 2017. According to this section, an eligible assessee that is making profits can claim 100% tax deductions for any three consecutive years. People commonly refer to it as 80IAC deduction for eligible startups. 

The aim of this provision is to decrease the evasion of taxes. As a result, this tax benefit encourages young entrepreneurs of India to become honest taxpayers.  

Who can apply for 80 IAC tax exemption?

Not all DPIIT-recognised startups are eligible to claim the 80IAC deduction. To know if you are eligible, check these points out: 

1. You have your DPIIT certificate; 
2. 80 IAC tax exemption is only available to Private Limited Companies or Limited Liability Partnerships; 
3. The entity incorporation was after 01/04/2016; 
4. You can claim tax deduction for any three consecutive years out of the first five years of incorporation; and
5. The startup claiming 80 IAC tax exemption has to be an original entity, not formed after a split or reconstruction of an existing business.

Process to claim 80 IAC tax exemption

Once you know that you can claim a tax exemption under section 80 IAC of the Income Tax Act, you can apply for the tax deduction claim by following these steps.

Step 1: Log in to startup India portal 

The first step in claiming a tax deduction is to create your startup India login. Then, you need to apply for DPIIT recognition certificate. You can do so, by following the steps of the startup India registration process. 

Step 2: Fill in the details 

After logging in to the portal and selecting ‘claim tax exemption’ you need to fill in the form.

1. Name of Startup;
2. Date of Incorporation;
3. Incorporation/registration number;
4. Address and Business location; 
5. Nature of Business (whether LLP or PLC); 
6. DIPP number; and 
7. Contact Details (namely Phone No., E-mail ID, and PAN number of entity).

Step 3: Submit documents required for 80 IAC tax exemption 

Apart from the information mentioned above, a startup opting for 80IAC deductions needs to submit the following documents in a PDF format: 

1. Memorandum of Association (if PLC);
2. Limited Liability Partnership Deed (if LLP);
3. Board Resolution (if any);
4.  CA certified balance sheet and Profit and Loss statements; 
5. Financial Statements for either the past 3 years or for all the years since incorporation; 
6. Income Tax Returns for either the past 3 years or from the date of incorporation; 
7. Link to a video pitch of the startup; and 
8. Pitch Deck in PDF format. 

Apart from these documents, if your startup has also received the certificate of angel tax exemption, then you need to provide the details for the same. 

Conclusion

Once you have submitted the form for section 80 IAC tax exemption, you need to wait for the approval. As a part of the process, the department will go through all the documents and information provided by you, and give an appropriate outcome. As a result of which, the timeline to get a response or approval from the DPIIT is around 3-9 months. Although, you can keep a track of your application by visiting the startup India portal and clicking on the ‘Dashboard’ of your profile. 

Frequently Asked Questions