Section 80-IAC Startup Tax Holiday for FY 2025-26: How DPIIT Startups Claim the 100% Three-Year Deduction, the March 31 2030 Extension, and the Section 140 Transition Under the Income-tax Act 2025

By CA Adityavikram Banka, Founder, A S Banka Advisors Private Limited. CBDT FAQ Deep-Dive Series, Part 8. Published on TaxUpdate.in.

Key Takeaways: The Section 80-IAC Startup Tax Holiday

• What it is: Section 80-IAC of the Income-tax Act, 1961 gives an eligible start-up a 100% deduction of the profits and gains derived from its eligible business for any three consecutive assessment years out of the first ten years from incorporation.
• The 2030 extension: The Finance Act, 2025 extended the benefit to start-ups incorporated up to 31 March 2030 (effective 1 April 2025), up from the earlier cut-off of 31 March 2025.
• Who qualifies: A DPIIT-recognised private limited company or LLP, incorporated between 1 April 2016 and 31 March 2030, with turnover not exceeding Rs 100 crore in the relevant previous year, holding an Inter-Ministerial Board (IMB) eligibility certificate, and not formed by splitting up or reconstruction of an existing business.
• Period-aware citation: For FY 2025-26 (AY 2026-27), the deduction is claimed under Section 80-IAC of the 1961 Act. Going forward, the Income-tax Act, 2025 (in force from 1 April 2026) carries the start-up deduction into Section 140, and Section 536 of the 2025 Act preserves continuity for benefits already accrued.
• Planning trap: A company that claims Section 80-IAC generally cannot also opt for the concessional regime under Section 115BAA, which bars most Chapter VI-A deductions, and Minimum Alternate Tax under Section 115JB can still apply. Model the choice before you elect a regime.

For an Indian start-up turning profitable, Section 80-IAC of the Income-tax Act, 1961 is one of the most valuable reliefs available: a 100% deduction of business profits for three years. With the Finance Act, 2025 extending eligibility to start-ups incorporated up to 31 March 2030, and the Income-tax Act, 2025 about to renumber the provision, founders and their advisers need clarity on how the Section 80-IAC startup tax holiday for FY 2025-26 works, who can claim it, and how it survives the transition to the new Act. This deep-dive walks through eligibility, the mechanics of the three-year window, the documentation, the planning traps, and the 1961-to-2025 Act mapping.

What is Section 80-IAC and what deduction does it give?

Section 80-IAC allows an eligible start-up a deduction of 100% of the profits and gains derived from the eligible business. The deduction can be claimed for any three consecutive assessment years, and the start-up may choose those three years out of the first ten years beginning from the year of incorporation. The flexibility matters: most start-ups are loss-making in their early years, so the founder can pick the three consecutive years in which profits, and therefore the tax saved, are highest.

Because the deduction is 100% of eligible-business profits, a qualifying start-up can effectively pay no regular income tax on those profits for the three chosen years, subject to the Minimum Alternate Tax point discussed below.

Who is an “eligible start-up” for Section 80-IAC?

To claim the deduction, all of the following conditions must be satisfied:

• Form of entity: The start-up must be a private limited company or a limited liability partnership (LLP). A partnership firm or proprietorship does not qualify.
• Date of incorporation: Incorporated on or after 1 April 2016 and before 1 April 2030 (that is, up to 31 March 2030, as extended by the Finance Act, 2025).
• Turnover limit: Total turnover of the business does not exceed Rs 100 crore in the previous year relevant to the assessment year for which the deduction is claimed.
• DPIIT recognition and IMB certificate: The start-up must be recognised by the Department for Promotion of Industry and Internal Trade (DPIIT) and must hold a certificate of eligible business from the Inter-Ministerial Board (IMB) of Certification. The IMB certificate is mandatory to claim the deduction.
• Eligible business: The business must be engaged in innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property, or a scalable business model with a high potential of employment generation or wealth creation.
• Not by reconstruction: The start-up must not be formed by splitting up or reconstruction of a business already in existence, and not by transfer of old plant and machinery beyond the permitted limits.

On the approval side, the government has streamlined the process: complete IMB applications are now reviewed within 120 days, and DPIIT recently cleared a fresh batch of 187 start-ups under the revised Section 80-IAC framework. More than 3,700 start-ups have been granted the exemption since the scheme began.

How the three-year window works (with an example)

Suppose a DPIIT-recognised company was incorporated in FY 2021-22. Its ten-year window runs across AY 2022-23 to AY 2031-32. If the company was loss-making until FY 2024-25 and turns strongly profitable from FY 2025-26 onwards, it can elect to claim the deduction for, say, AY 2026-27, AY 2027-28 and AY 2028-29 (three consecutive years), provided its turnover stays within Rs 100 crore in each of those years and it holds the IMB certificate. The deduction shelters 100% of the eligible-business profits in those three years.

Feature	Section 80-IAC position
Quantum of deduction	100% of profits and gains of the eligible business
Number of years	Any 3 consecutive assessment years
Selection window	Out of the first 10 years from incorporation
Turnover ceiling	Rs 100 crore in the relevant previous year
Incorporation window	1 April 2016 to 31 March 2030
Mandatory approval	DPIIT recognition + IMB eligibility certificate

The Minimum Alternate Tax and Section 115BAA planning trap

This is where many founders lose value. Two interactions need to be modelled before claiming Section 80-IAC:

• Concessional regime conflict: A company that opts for the concessional 22% tax regime under Section 115BAA must forgo most Chapter VI-A deductions, which includes Section 80-IAC. In practice, a start-up that wants the 80-IAC holiday must stay in the normal tax regime for those years rather than electing 115BAA.
• Minimum Alternate Tax (MAT): In the normal regime, MAT under Section 115JB can apply on book profits even when the regular tax is reduced to nil by the 80-IAC deduction. The MAT paid is not lost; it is available as MAT credit that can be carried forward and set off in later years against regular tax.

The practical takeaway: run a side-by-side computation of (a) normal regime with 80-IAC plus MAT, versus (b) the 115BAA concessional regime without 80-IAC, for the relevant years. The right answer depends on the profit profile and the value of the MAT credit that can be recovered later.

How to claim the Section 80-IAC deduction: a checklist

1. Secure DPIIT recognition for the start-up if not already obtained.
2. Apply for and obtain the IMB eligibility certificate under Section 80-IAC. This certificate is a precondition to the deduction.
3. Confirm the turnover test for the relevant year is within Rs 100 crore.
4. Choose the three consecutive years strategically, aligning the holiday with your highest-profit years inside the ten-year window.
5. Get the accounts audited and obtain the prescribed audit report supporting the deduction, to be furnished along with the return.
6. File the return within the Section 139(1) due date. The deduction is reported in Schedule VI-A of the income tax return. Filing after the due date can jeopardise the claim.
7. Model MAT and the regime choice (normal vs 115BAA) before finalising, as explained above.

Section 80-IAC under the Income-tax Act, 2025: the Section 140 transition

The Income-tax Act, 2025 is in force from 1 April 2026 (Tax Year 2026-27 onwards), while the Income-tax Act, 1961 continues to govern FY 2025-26 and earlier years. Applying our period-aware rule:

• For FY 2025-26 (AY 2026-27), the start-up deduction is claimed under Section 80-IAC of the Income-tax Act, 1961. This is the operative provision for the return you file this season.
• Under the Income-tax Act, 2025, the start-up deduction is carried forward into Section 140, titled “Special provision in respect of specified business,” which grants eligible start-ups up to 100% of profits for three consecutive years within the ten-year window, on broadly the same conditions.
• Continuity is protected by Section 536 of the Income-tax Act, 2025, the saving clause that preserves benefits, elections and positions already accrued under the 1961 Act as the law transitions. A start-up that has begun its three-year holiday under Section 80-IAC does not lose it merely because the Act is renumbered.

The bottom line for founders incorporating now: the benefit is open to companies set up up to 31 March 2030, and it survives the move to the new Act as Section 140. Plan the incorporation, DPIIT recognition and IMB certificate early so the holiday is available when profits arrive.

Frequently Asked Questions

Can an LLP claim the Section 80-IAC startup deduction?

Yes. Section 80-IAC is available to an eligible start-up that is either a private limited company or an LLP, provided all the other conditions (DPIIT recognition, IMB certificate, turnover limit, incorporation window and eligible-business test) are met.

Does the start-up need an IMB certificate, or is DPIIT recognition enough?

DPIIT recognition alone is not sufficient for the tax holiday. The start-up must also hold an Inter-Ministerial Board (IMB) eligibility certificate for Section 80-IAC. DPIIT recognition opens the door to several start-up benefits, but the IMB certificate is the specific gateway to the income tax deduction.

What happens if turnover crosses Rs 100 crore?

The turnover limit of Rs 100 crore is tested for the previous year relevant to the year of claim. If turnover exceeds Rs 100 crore in a given year, the deduction is not available for that year. Choosing the three consecutive holiday years carefully, before turnover scales beyond the ceiling, is part of the planning.

Has the Section 80-IAC benefit been extended beyond 2025?

Yes. The Finance Act, 2025 extended the incorporation window to 31 March 2030 (effective 1 April 2025). Start-ups incorporated up to that date can, subject to the conditions, claim the three-year, 100% deduction.

Does Section 80-IAC continue under the new Income-tax Act, 2025?

Yes. The start-up deduction continues under the Income-tax Act, 2025 as Section 140 (“Special provision in respect of specified business”), with Section 536 preserving continuity for benefits already accrued. For FY 2025-26 returns, however, the operative provision remains Section 80-IAC of the 1961 Act.

Related reading on TaxUpdate.in

• CBDT FAQ Deep-Dive #3: Loss carry-forward, MAT and AMT credit continuity under Section 536
• CBDT FAQ Deep-Dive #4: Capital gains transition under Section 536 of the Income-tax Act 2025
• CBDT FAQ Deep-Dive #7: Section 43B actual-payment deductions and the 43B(h) MSME disallowance

Schedule a Strategy Session

If you are a founder deciding when to claim the Section 80-IAC holiday, whether to elect Section 115BAA, or how to time your three-year window against your fundraising and profit plan, the team at Tax Update India can build the model with you. Schedule a Strategy Session on a quick call and we will map the optimal claim.

Disclaimer: This article is for general information based on Section 80-IAC of the Income-tax Act, 1961, the Finance Act, 2025 amendment, and Section 140 and Section 536 of the Income-tax Act, 2025 as available on the date of publication (12 June 2026). It is not legal, tax or professional advice. Provisions, thresholds and forms can change. Verify the current position against primary sources and the IMB or DPIIT guidance, and consult a qualified professional before acting.