Startups may seek for a three-year tax exemption under the Startup India Plan of the Indian government within ten years of its formation. We help the start-up acquire Tax Exemption U/s Section 80IAC. During the early phases of business, newly formed and incorporated firms frequently experience a lack of financial resources, which further affects their sales and earnings.
To aid them in overcoming this difficult obstacle, the government has offered many tax exemptions for startups in India, one of which is provided under Section 80-IAC of the Income Tax.
In accordance with this Section, eligible startups are permitted a 100% tax deduction on profits realised over the course of three consecutive financial years when calculating their total taxable income. The startup, however, cannot be more than 10 years old and cannot have had a revenue of more than Rs. 100 crores in any of the financial years since it was founded.
Eligibility for startup Tax Exemption U/s 80IAC
To be eligible for startup Tax Exemption U/s Section 80IAC of the Income Tax Act, a startup must satisfy the following conditions:
- Not older than 10 years-Within the first ten years following the date of the Startup’s incorporation or registration, deductions may be claimed in any three of those years.
- New and Original Entity-Except in cases where the reconstruction has been done in accordance with Section 33B of the Income Tax Act, the startup may not be formed by the division or reconstruction of an existing business company.
- Recognized as Startup by the DPIIT – Startups must be recognised by the Department of Promotion of Industry and Internal Trade, and they have a DPIIT Recognition Certificate.
- Operates with New Plant and Machinery-The startup cannot be created by transferring already-in-use equipment and machinery.
- Either a company or an LLP or registered partnership firm- The new business must be registered as a company, a limited liability partnership, or a partnership firm. Starting up as any other type of business structure does not qualify for this deduction.
- Incorporated after 1st April 2016-Any startup that was formed or registered after April 1, 2016, up to the present, is eligible for the tax exemption under Section 80IAC.
- Turnover not exceeding Rs.100 crores-For the Financial Year for which a deduction under Section 80IAC is being claimed in the relevant assessment year, the turnover cannot exceed Rs. 100 crores.
- Must market new goods, services, or procedures-The concerned startup must either develop new innovative products, services, or processes, or innovate an improved version of the existing ones. However, the DPIIT Initial Tax Advantages are not available to firms created through the division or reconstruction of an existing business.
Benefits of startup tax exemption u/s 80IAC
Startup Tax Exemption U/s Section 80IAC of the Income Tax Act provides several benefits to eligible startups, including:
- Reduced financial burden: By exempting the income tax for three consecutive years, startups can save a significant amount of money, which they can use for expanding their business, investing in research and development, or hiring more employees.
- Encourages entrepreneurship: The tax exemption encourages young entrepreneurs to start new ventures and take risks without worrying about the tax liability in their early years of business.
- Boosts innovation: Startups often face financial constraints in their initial years, and the tax exemption can provide a cushion to fund their research and development activities. This, in turn, can lead to the development of innovative products and services.
- Promotes employment: With more funds available, startups can invest in hiring skilled employees, providing training, and creating job opportunities. This, in turn, can contribute to the overall economic growth of the country.
- Enhances competitiveness: The tax exemption can give startups a competitive advantage over established companies, as they can reinvest their savings to improve their products, services, and operations.
Documents Required for claiming Section 80-IAC Exemption
- Name, address, and nature of business of the startup
- Date of Incorporation Number and CIN / LLPIN
- Permanent Account Number (PAN) of the startup
- DIPP Number of the Startup after its recognition by the DPIIT
- Contact Information of the Startup (E-mail ID and Contact Number)
- Copy of the Memorandum of Association of the company, or LLP Deed of the LLP or Registered Partnership Agreement
- Copy of the Board Resolution, in case of a company, if any
- Copies of the startup’s Balance Sheet and Profit & Loss Statement of the last 3 financial years, certified by a practising Chartered Accountant
- Copies of Income Tax Returns of the last 3 financial years mandatory, if it was incorporated before 1st April, 2018
- Copy of Certificate obtained under section 56 of the Income Tax Act (Eligibility under this section)
- Video link and copy of pitch deck required according to the stage in which the startup is (ideation / validation / early traction / scaling)
Process to apply for 80IAC exemption
STEP 1 – Documentation:Under the Income Tax Act, the 80-IAC deduction is only available through an application-based process. Like with other applications, a vast list of supporting documents must be sent with this one as well.
We strongly advise every applicant to make sure they have all the documents needed to apply for tax exemption under Section 80IAC in their proper formats and with the most recent information, in advance, to avoid any complications. We view documentation as the most crucial component of any application and as one of the main factors in whether it is ultimately approved or rejected by the relevant authority.
STEP 2 – Login to the Startup India Portal:The next step is to visit Startup India’s official website and select “Apply for Tax Exemptions” from the main menu under the heading “Recognition” after gathering all the required paperwork. Your login information will be required to access the portal.
STEP 3 – Fill out the Application form:The application form for requesting an 80-IAC exemption will show up on the screen after you check in. These documents must be filled out with relevant startup information, such as the company’s name, address, business activity or industry, contact information, date of establishment, and PAN number. Additionally, since the firm has already received DPIIT recognition, you must additionally submit the DIPP number listed on the startup’s Startup India Recognition Certificate.
STEP 4 – Upload all necessary attachments:Once all the required information has been entered, you can upload any supporting documents, such as the startup’s constitution documents (MOA or LLP Deed), a copy of its annual financial statements and ITR, a video link, and a pitch deck outlining the product prototype and concept that led to the creation of the Start Up.