Most founders meet this benefit as "80-IAC". That number still matters for old years, but it is no longer the section you claim under. Here is the current position, the conditions that actually decide cases, and the one turnover figure nobody should quote to you with confidence.
Which section applies to your year
The deduction did not change. The number did.
| Year of income | Claimed under |
|---|---|
| FY 2025-26 and earlier (AY 2026-27 and earlier) | Section 80-IAC, Income-tax Act, 1961 |
| Tax Year 2026-27 onwards, that is income from 1 April 2026 | Section 140, Income-tax Act, 2025 |
The Income-tax Act, 2025 came into force on 1 April 2026. It also retires the assessment year, so the three years you choose are three consecutive tax years, not assessment years. If you are reading an article that still says "three consecutive assessment years", it was written before the change. For the wider picture, see what the Income-tax Act, 2025 changes and how the tax year works.
If your chosen three-year window straddles 1 April 2026, part of it falls under each Act. The deduction continues, but the claim is made under a different section in each year, and the return forms differ. We check that position on the file rather than assume it.
What the deduction gives you
Section 140 allows a deduction of 100% of the profits and gains derived from the eligible business, for any three consecutive tax years out of ten, counting from the year of incorporation.
Three things follow from that wording, and each one costs founders money:
- It is a deduction of business profits only. Interest on your fixed deposits, capital gains on a secondary sale, and other non-business income stay fully taxable. A startup whose profit is mostly treasury income gets far less from this than it expects.
- It applies to profits, not to revenue. A loss-making year has nothing to deduct, so a year claimed in a loss period is a year wasted.
- Ten years is the window, not a deadline to claim by. You have ten tax years from incorporation inside which to place a block of three consecutive years.
Who is eligible
| Condition | Requirement |
|---|---|
| Entity type | A company or an LLP. Nothing else. |
| Incorporation date | On or after 1 April 2016 and before 1 April 2030 |
| Recognition | DPIIT-recognised as a startup |
| Certificate | A certificate of eligible business from the Inter-Ministerial Board of Certification |
| Nature of business | Innovation, development or improvement of products, processes or services, or a scalable business model with high potential for employment generation or wealth creation |
| Formation | Not formed by splitting up, or by the reconstruction, of a business already in existence |
| Assets | Not formed by transferring to it plant or machinery previously used for any purpose, subject to the exceptions in the section |
| Accounts | Audited, with the report furnished by the specified date. See tax audit. |
| Turnover | The section carries a turnover condition for the tax year. See the note below before you rely on a figure. |
On entity type, the trap is recognition. DPIIT recognition and the tax holiday are different tests with different populations. A registered partnership firm can be DPIIT-recognised. So can a cooperative society. Neither can claim the startup tax holiday, because the deduction is confined to companies and LLPs. Founders who read "recognised startup" and assume the tax benefit follows are the most common disappointed case we see. If you are still choosing a structure, private limited company registration keeps the option open.
On the turnover condition, we will not give you a number. The section requires turnover in the tax year to be within a ceiling, but the official material is not consistent about what that ceiling is: the Income Tax Department's own page for the section and the Startup India application page carry one figure, and DPIIT's Tax Playbook published in May 2026 carries a higher one. Until that is reconciled, quoting either figure risks telling an eligible founder to give up, or telling an ineligible one to spend three months on an application. We check the current position against the department's page on the day you apply. Separately, and this part is settled: DPIIT recognition requires that turnover has not exceeded ₹200 crore in any financial year since incorporation.
The two-step process most startups get wrong
Recognition is the entry ticket. The certificate is the benefit.
- DPIIT recognition. Applied for on the National Single Window System at nsws.gov.in. There is no government fee. This is what gives you the Certificate of Recognition and the ecosystem benefits, and it is a precondition for step 2. See our note on Startup India registration.
- The Inter-Ministerial Board certificate. A separate application, made after recognition, through the 80-IAC form on the Startup India portal. The Board issues a certificate of eligible business. Only this certificate activates the deduction. There is no government fee shown on the portal for it either.
Founders routinely complete step 1, see the word "tax exemption" in the Startup India benefits list, and never file step 2. The deduction is then simply not available, and the years keep running down the ten-year window.
Be accurate in the application. The Board can cancel a certificate if it finds that the information given was untrue, and the documents it asks for are specific: the pitch deck within the file size the portal allows, financial statements matched to the age of the entity, and returns filed to date. A credit rating is optional.
Choose your three years deliberately
This is the most valuable decision on the page, and it is yours to make.
The three years must be consecutive, and they must sit inside the ten tax years from incorporation. You cannot claim, skip a year, and resume. So the question is not "can we claim this year" but "where in the next decade will three consecutive years of peak profit fall".
A typical pattern: losses in years one to three, thin profits in year four, and the real margin from year five. Claiming in year two throws away a third of the benefit on a loss. Claiming years five, six and seven captures it. Against that, a longer wait carries the risk that profits arrive later than planned, or that the business is acquired before the window is used.
Two constraints to build into the plan:
- Your return has to be on time. Under the 1961 Act, section 80AC denies the deduction outright if the return is not filed by the due date. The same discipline applies under the 2025 Act. A late return in a claim year does not delay the deduction, it destroys that year's claim. Our income tax return filing work runs to the due date for this reason.
- Choosing the concessional corporate rate forfeits it. A company that has opted for the concessional regime under section 115BAA of the 1961 Act, at 22%, cannot also claim this deduction. If you have already exercised that option, the holiday is not available to you. Run both computations before you opt for anything.
The catch: minimum tax still applies
The deduction removes the regular income tax on eligible profits. It does not switch off minimum tax.
A company claiming the deduction remains liable to Minimum Alternate Tax under section 115JB of the 1961 Act, at 15% of book profit. So on ₹1 crore of book profit, roughly ₹15 lakh is still payable in a holiday year. That is not lost money: MAT credit under section 115JAA carries forward and can be set off against regular tax in later years, once the holiday is over and normal rates resume.
An LLP claiming the deduction faces the parallel Alternate Minimum Tax under section 115JC, where the deduction is added back in computing adjusted total income.
The 2025 Act carries corresponding provisions for minimum tax, for alternate minimum tax and for the concessional company rate. We have not seen the section numbers confirmed in official material yet, so we do not quote them; the position for your year is confirmed before filing.
The practical point is a cash-flow one. A "zero tax" year is not a zero payment year. Budget for the minimum tax and treat the credit as a receivable.
Angel tax: gone, and stop quoting the old section
Angel tax has been abolished with effect from AY 2025-26. Share premium received by a company is no longer taxed as income in its hands under that provision.
Two corrections worth making, because both appear on startup blogs written earlier:
- The provision that imposed it, section 56(2)(viib), belonged to the Income-tax Act, 1961, which was repealed from 1 April 2026. Citing it as current law is wrong on two counts now.
- Abolition of angel tax does not remove the need for a valuation. Pricing under FEMA for a foreign investor, and valuation under Rule 11UA where a rule requires it, are separate questions. See valuation under Rule 11UA and, for the history, angel tax exemption.
A related benefit worth knowing
Employees of an eligible startup can defer the tax on their ESOP perquisite. Under section 192(1C) of the 1961 Act, an eligible start-up referred to in section 80-IAC could deduct and pay the tax on the ESOP perquisite at a deferred point rather than in the month of exercise. If you are building an option pool, check the current position under the 2025 Act before you promise anything to employees. Our note on ESOP scheme drafting covers the mechanics.
Key takeaways
- The startup tax holiday is claimed under section 140 of the Income-tax Act, 2025 from Tax Year 2026-27, and under section 80-IAC of the 1961 Act for FY 2025-26 and earlier.
- 100% of eligible business profits, for any three consecutive tax years out of your first ten.
- Companies and LLPs only. A partnership firm or a cooperative society can be recognised but cannot claim.
- Incorporation must fall on or after 1 April 2016 and before 1 April 2030.
- DPIIT recognition is not the benefit. The Inter-Ministerial Board certificate is.
- Do not rely on any turnover ceiling you read online for this deduction. The official figures disagree.
- Minimum tax at 15% of book profit still applies in a holiday year, and comes back as credit.
- A return filed after the due date in a claim year loses that year's deduction.
Working out whether to apply, and when to claim? We check eligibility against the section as it currently reads, prepare the Inter-Ministerial Board application, and model which three years to claim against your projections and minimum tax. See the startup tax holiday service, or talk to a CA on +91 70444 94804. WhatsApp us on the same number.
Frequently asked questions
Is section 80-IAC the same as section 140?
Yes, in substance. The startup tax holiday was section 80-IAC of the Income-tax Act, 1961 and is section 140 of the Income-tax Act, 2025, which came into force on 1 April 2026. Claims for FY 2025-26 and earlier years are made under section 80-IAC. Claims from Tax Year 2026-27 are made under section 140.
What does the startup tax holiday actually give me?
A deduction of 100% of the profits and gains of your eligible business for any three consecutive tax years, chosen from the ten years beginning with the year of incorporation. It applies to business profits only, so interest income, capital gains and other non-business income remain taxable in those years.
Who is eligible for the startup tax holiday?
A company or an LLP, incorporated on or after 1 April 2016 and before 1 April 2030, that is DPIIT-recognised, holds a certificate of eligible business from the Inter-Ministerial Board, is not formed by splitting up or reconstructing an existing business, has not been formed by transferring previously used plant or machinery, and gets its accounts audited. A turnover condition also applies for the tax year.
What is the turnover limit for section 140 or 80-IAC?
The section carries a turnover condition, but we do not publish a figure because official sources disagree on it. The Income Tax Department's page for the section and the Startup India application page show one ceiling and DPIIT's Tax Playbook of May 2026 shows a higher one. We confirm the position on the department's page at the time of the application. For DPIIT recognition itself, the limit is settled: turnover must not have exceeded ₹200 crore in any financial year since incorporation.
Can an LLP claim the startup tax holiday?
Yes. A limited liability partnership is eligible on the same terms as a company, and must also satisfy the recognition, certificate, formation and audit conditions. An LLP claiming the deduction is liable to Alternate Minimum Tax under section 115JC of the 1961 Act, where the deduction is added back in computing adjusted total income.
Can a partnership firm claim it?
No. A registered partnership firm can obtain DPIIT recognition, and so can a cooperative society, but the deduction is available only to companies and LLPs. If the tax holiday is the reason you are seeking recognition, convert before you apply rather than after, because the incorporation date of the new entity is what the section looks at.
Is DPIIT recognition enough to get the tax holiday?
No, and this is where most claims are lost. Recognition is a precondition for applying. A separate application then goes to the Inter-Ministerial Board of Certification, through the 80-IAC form on the Startup India portal, and its certificate of eligible business is what activates the deduction. Neither application carries a government fee.
Which three years should I claim?
The three consecutive tax years in which you expect the highest profits, placed anywhere inside the ten years from incorporation. Claiming in an early loss-making year wastes that year, because a deduction of profits needs profits. You cannot claim, skip a year and resume, so the block has to be chosen rather than defaulted into.
Does minimum tax apply during the tax holiday?
Yes. A company claiming the deduction still pays Minimum Alternate Tax under section 115JB of the 1961 Act at 15% of book profit, so a holiday year is not a nil-payment year. The tax paid becomes MAT credit under section 115JAA and can be set off against regular tax in later years. The 2025 Act carries corresponding provisions, and we confirm the section numbers for your year before filing.
Does angel tax still apply to my funding round?
No. Angel tax has been abolished with effect from AY 2025-26, so share premium is no longer taxed as income in the company's hands under that provision. The provision that imposed it, section 56(2)(viib), sat in the Income-tax Act, 1961, which was repealed from 1 April 2026. Valuation is still needed for FEMA pricing on foreign investment and wherever a rule requires it.
Startup tax holiday kaise milta hai?
Do alag steps hain. Pehle DPIIT recognition lein, jo nsws.gov.in par free milti hai. Uske baad Startup India portal par 80-IAC form se Inter-Ministerial Board ka eligible business certificate apply karein. Sirf yehi certificate deduction ko activate karta hai. FY 2025-26 tak claim section 80-IAC ke tehat hota tha, aur Tax Year 2026-27 se Income-tax Act, 2025 ke section 140 ke tehat hota hai. Company aur LLP dono eligible hain, partnership firm nahi.
About the author
CA Ganpat Khemka
Chartered Accountant at Regikart. Want to discuss this in the context of your business?
