Startup Tax Exemption 80-IAC (Now Section 140) Guide 2026

The startup tax exemption lets an eligible company or LLP deduct 100% of its profits for any three consecutive years out of its first ten, so it pays no normal income tax on those profits in the years it chooses. The benefit was known as Section 80-IAC under the Income-tax Act, 1961; from 1 April 2026 it is Section 140 of the Income-tax Act, 2025, with the same core conditions. It is active as of October 2026 for startups incorporated before 1 April 2030, but it needs a separate certificate from the Inter-Ministerial Board, not just DPIIT recognition.

Old Section 80-IAC vs new Section 140

For income of FY 2025-26 (filed in 2026), the claim is still made under the 1961 Act's Section 80-IAC. From tax year 2026-27 onward the claim is under Section 140. Startups already in their three-year window continue under the transition provisions; your CA or the ITR utility will map the section.

Note the difference between two turnover limits. DPIIT recognition now allows turnover up to ₹200 crore (₹300 crore for deep-tech startups) under the February 2026 notification, but the tax deduction in Section 140 still requires turnover of ₹100 crore or less in the year you claim it.

Who is eligible

1. Entity type: a private limited company or an LLP. Proprietorships, partnership firms and HUFs cannot claim it.
2. Incorporated on or after 1 April 2016 and before 1 April 2030.
3. DPIIT recognised as a startup.
4. IMB certificate of eligible business. The Inter-Ministerial Board checks for innovation, scalability and potential for employment or wealth creation.
5. Turnover of ₹100 crore or less in the tax year of claim.
6. Not formed by splitting up or reconstruction of an existing business.
7. Not formed by transfer of used plant and machinery; used machinery up to 20% of the total value is allowed, and certain imported machinery not used in India is ignored.

The three-year choice

You pick which three consecutive years to claim within the ten-year window. Most startups make losses early, so claiming in loss years wastes the benefit. A practical rule: start the three-year block in the first year you expect a meaningful taxable profit, and make sure turnover will stay within ₹100 crore for all three years.

Tax regime and MAT: the catch

• A company that claims this deduction cannot opt for the concessional 22% company tax regime (old Section 115BAA), because that regime bars such deductions.
• In the normal regime, a company remains liable to minimum alternate tax (MAT) on book profit even if its taxable income is nil after the deduction. Published commentary on the Finance Act, 2026 says MAT was cut to 14% and made a final tax (no new MAT credit) from tax year 2026-27 for companies staying in the old regime.
• LLPs are liable to alternate minimum tax (AMT) instead.

So the holiday removes normal tax but not MAT. Have a chartered accountant model both regimes before choosing.

Worked example: tax with and without the deduction

A DPIIT-recognised company with an IMB certificate earns a taxable profit (and book profit) of ₹80 lakh in a year. Figures below are illustrative and ignore other adjustments.

Option A: concessional regime without the startup deduction

• Tax at 22% + 10% surcharge + 4% cess = effective rate 25.168%
• ₹80,00,000 × 25.168% = ₹20,13,440

Option B: normal regime, claiming the Section 140 deduction

• Normal tax: ₹80,00,000 − ₹80,00,000 deduction = ₹0
• MAT at 14% of book profit: ₹80,00,000 × 14% = ₹11,20,000
• Add 4% cess: ₹11,20,000 × 1.04 = ₹11,64,800 (no surcharge, as income is below ₹1 crore)

Over three years at the same profit, the saving is about ₹25.46 lakh. If MAT rates or your book profit differ, the gap changes, which is why the regime choice matters. For individual tax planning see new vs old tax regime.

Documents needed for the IMB application

• DPIIT recognition number
• Certificate of incorporation and MoA/AoA or LLP deed
• PAN of the entity
• Board resolution (company) or partners' resolution (LLP) supporting the application
• Audited accounts and income-tax returns for the last three years (or since incorporation)
• Pitch deck or write-up explaining the innovation, with links, videos, patents or trademarks if any
• Details of directors or partners and shareholding

How to apply, step by step

1. Incorporate as a company or LLP and get DPIIT recognition on the Startup India portal (free).
2. Log in to the Startup India portal and choose the option to apply for the tax exemption (Section 80-IAC / Section 140 certificate).
3. Fill the form with incorporation details, PAN, business description and how the product is innovative and scalable.
4. Upload documents listed above and submit.
5. IMB review. The Board may ask for clarifications. Respond quickly through the portal.
6. Receive the certificate of eligible business. Keep it on record.
7. Claim in your ITR for the chosen three consecutive years, and keep the turnover and other conditions in check each year. Get the return audited and filed on time; see our guide on how to file ITR online.

There is no government fee for DPIIT recognition or the IMB application. Be wary of consultants who "guarantee" IMB approval.

Why IMB applications get rejected

The IMB approves only a fraction of applications. PIB reported, for example, that DPIIT cleared 187 startups in one round under the revised framework. Common reasons for rejection:

• No clear innovation: a trading, agency, services or IT outsourcing model without a new product or process.
• Weak write-up: generic pitch deck with no evidence of product, users or IP.
• Entity not eligible: proprietorship, partnership or incorporation outside the window.
• Formed by restructuring an existing business or transferring its assets.
• Incomplete documents or no response to IMB queries.

If rejected, you can reapply with a stronger submission showing traction, patents or technology depth.

How to complain

• Portal or certificate issues: use the Startup India portal's grievance and contact options for DPIIT.
• Delays: escalate on CPGRAMS (pgportal.gov.in) against DPIIT.
• Tax disputes: if the deduction is denied in assessment, respond to the notice through the e-filing portal and, if needed, appeal to the Commissioner (Appeals). A CA should handle this.

Key takeaways

• Section 140 of the Income-tax Act, 2025 continues the old Section 80-IAC startup tax holiday from 1 April 2026.
• Eligible companies and LLPs can deduct 100% of profits for 3 consecutive years out of the first 10.
• You need incorporation before 1 April 2030, turnover up to ₹100 crore and an IMB certificate, not just DPIIT recognition.
• Companies claiming it stay out of the 22% regime and still pay MAT on book profit.
• On ₹80 lakh profit, the illustrative saving is about ₹8.5 lakh a year; choose the three years carefully.