Form · Startups
What is the startup tax holiday under section 80-IAC, and why are most applications refused?
Eligibility for the section 80-IAC tax holiday, the Inter-Ministerial Board process, and common reasons for refusal.
Section 80-IAC of the Income-tax Act, 1961 lets an eligible startup deduct all of its profits for three consecutive years out of its first ten years. The startup must hold DPIIT recognition, and must separately apply to the Inter-Ministerial Board for a tax deduction certificate. Many applications are refused there, generally because the business is not assessed as innovative or scalable enough. Angel tax under section 56(2)(viib) was withdrawn by the Finance (No. 2) Act, 2024.
The statutory positions on this page were reviewed by Lalit Mohan Tyagi, FCA on 26 August 2026. They describe the general position and not every provision that may apply to a particular case. Confirm your own position with the firm before you act on it.
What relief does section 80-IAC provide?
Section 80-IAC allows an eligible startup to deduct one hundred per cent of its profits for three consecutive assessment years.
Those three years can be chosen out of the first ten years counted from the year of incorporation.
The deduction reduces taxable profit for the years claimed, rather than providing a refund of tax already paid.
Which entities are eligible?
Only a private limited company or a limited liability partnership can apply, since a registered partnership firm is not eligible for this particular deduction.
The entity must hold current DPIIT recognition before it applies for the section 80-IAC certificate.
Incorporation date and turnover conditions, tied to the same startup definition used for DPIIT recognition, also apply.
What is the role of the Inter-Ministerial Board?
The Inter-Ministerial Board is a separate body that evaluates applications for the section 80-IAC deduction, distinct from the DPIIT recognition process.
The Board assesses the business plan against the innovation, scalability and employment or wealth generation potential the section is meant to encourage.
A tax deduction certificate is issued only if the Board approves the application.
What has to be filed to apply for the certificate?
The application is filed on the Startup India portal, supported by the DPIIT recognition certificate, financial statements and a description of the business.
A pitch deck or business plan describing the product or service and its scalability is generally part of the supporting material.
The Board can seek clarification or additional information before it decides.
Why are most applications refused?
Refusal is commonly linked to the Board's assessment that the business does not demonstrate enough innovation or scalability beyond an existing business model.
Applications are also refused where the incorporation date, turnover, or entity type conditions are not strictly met.
An application that has already claimed the deduction in three earlier years, or that has exceeded the ten-year window, is not eligible regardless of the business plan.
Can a startup choose which three years to claim?
The startup can choose any three consecutive years out of its first ten years from incorporation.
This lets a startup wait until it is profitable before starting the three-year claim, rather than using the deduction against an early loss-making year.
How does the withdrawal of angel tax under section 56(2)(viib) relate to this exemption?
Angel tax under section 56(2)(viib) taxed the excess of a share issue price over fair market value, in the hands of certain closely held companies.
That provision was withdrawn by the Finance (No. 2) Act, 2024, separately from the section 80-IAC tax holiday.
Its withdrawal reduced one funding-round tax risk for startups generally, but it does not affect eligibility for the section 80-IAC deduction itself.
Does the new Income-tax Act, 2025 change this relief?
The Income-tax Act, 2025 commences on 1 April 2026 and replaces the 1961 Act from that date.
Whether the equivalent provision under the new Act carries the same three-year, ten-year structure has not been confirmed on this page.
The position for a period beginning on or after 1 April 2026 should be checked directly with the firm.
Statutory basis
| Position | Rests on | Stated as at | Status |
|---|---|---|---|
| Section 80-IAC allows a deduction of one hundred per cent of profits for three consecutive assessment years, chosen out of the first ten years from incorporation. | Income-tax Act, 1961, section 80-IAC | August 2026 | Verified |
| DPIIT recognition is a precondition for applying for the section 80-IAC deduction certificate. | Income-tax Act, 1961, section 80-IAC, read with the DPIIT Startup India framework | August 2026 | Verified |
| The Inter-Ministerial Board evaluates section 80-IAC applications and issues a tax deduction certificate, separately from DPIIT recognition. | Constitution and functioning of the Inter-Ministerial Board under the Startup India framework | August 2026 | Verified |
| Only a private limited company or a limited liability partnership, meeting the incorporation date and turnover conditions of the startup definition, is eligible to apply for the section 80-IAC deduction. | Income-tax Act, 1961, section 80-IAC | August 2026 | Verified |
| Section 56(2)(viib), commonly called angel tax, was withdrawn by the Finance (No. 2) Act, 2024. | Finance (No. 2) Act, 2024 | August 2026 | Verified |
Is DPIIT recognition enough to get the tax holiday?
No. Recognition is a precondition, but the section 80-IAC deduction needs a separate application to, and approval by, the Inter-Ministerial Board.
Can a startup claim the deduction for its first three years right after incorporation?
Yes, if it chooses to. The three years can be the first three years, or any other three consecutive years within the first ten.
What happens if a startup misses applying early?
The deduction can still be claimed later, as long as the three years chosen fall within the first ten years from incorporation.
Does the tax holiday cover GST as well as income tax?
No. Section 80-IAC is an income tax deduction only, and does not affect goods and services tax obligations.
Is angel tax still a concern for a startup raising a funding round?
Section 56(2)(viib) was withdrawn by the Finance (No. 2) Act, 2024, though the position should be confirmed with the firm for a specific transaction.
Related pages in this section
Last reviewed 26 August 2026.