3 Years of Zero Tax Under 80-IAC for Eligible Startups: Truth, Caveats & How to Claim

 Learn how eligible startups can claim 3 years of zero tax under 80-IAC, the rules, conditions, and process to apply for this tax holiday.

Introduction

Imagine launching your dream startup, finally making profits, and then—boom—tax season arrives. Just when you thought the celebration could continue, income tax bills knock on your door. But here’s the good news: if you’re an eligible startup in India, Section 80-IAC offers you a golden ticket—3 consecutive years of zero income tax.

Sounds like a jackpot, right? Well, not so fast. The claim is mostly true, but there are important caveats. It’s not automatic; you’ll need to satisfy eligibility criteria, go through approvals, and apply at the right time.

In this article, I’ll break down what’s true, what’s simplified, and what you need to watch out for if you’re looking to benefit from the 3 years of zero tax under 80-IAC for eligible startups.

1. What is Section 80-IAC?

Section 80-IAC is a special provision under the Indian Income Tax Act designed to encourage innovation and entrepreneurship. It allows eligible startups to claim a 100% deduction on profits for 3 consecutive financial years. This means you won’t pay income tax during that period on profits generated from the eligible business.

2. The Core Promise: 3 Years of Zero Tax

Yes, the headline claim is true: 3 years of zero tax under 80-IAC for eligible startups. You get to pick your tax holiday years within the first 10 years from your incorporation. This provides flexibility—so if your startup isn’t profitable in the early years, you can wait and claim when it is.

3. Who Can Apply? Eligibility Conditions

Not every startup can walk in and claim this benefit. To qualify, your startup must:

1. Be incorporated as a Private Limited Company, LLP, or Registered Partnership Firm.
2. Be recognized by DPIIT (Department for Promotion of Industry and Internal Trade).
3. Not be older than 10 years from the date of incorporation.
4. Have an annual turnover under ₹100 crore during the relevant year.
   
   
   

4. The Role of DPIIT Recognition

Think of DPIIT recognition as your entry ticket. Without it, you can’t even get in the game. To apply:

1. Register your startup on the Startup India portal.
2. Provide details like your PAN, incorporation certificate, and business plan.
3. Once recognized, you’re eligible to apply for the 80-IAC benefit.

5. Turnover Limit: ₹100 Crore Ceiling

Even if you’re DPIIT recognized, your startup must maintain a turnover below ₹100 crore in the financial year when you claim the benefit. If you cross the ceiling even once, you lose eligibility.

6. The “3 Years” Rule: Consecutive vs. Selective

Here’s where many people get confused. You cannot randomly pick 3 separate profitable years. The years must be consecutive. For example, if you choose FY 2026-27 as your start, then FY 2026-27, 2027-28, and 2028-29 must all be claimed in a block.

7. Profits Matter: Why Loss-Making Startups Don’t Benefit

The tax holiday only applies to profits. If your startup is still burning cash, there’s nothing to exempt. So, in practice, many startups wait until they become profitable before triggering their 3-year block.

8. Types of Businesses That Qualify

Your startup must be engaged in:

1. Innovation, development, or improvement of products or services.
2. Businesses that are scalable and can generate employment or wealth creation.

A simple trading or generic service business may not qualify.

9. Exclusions: Who Doesn’t Qualify

You can’t claim 80-IAC if:

1. Your startup is formed by splitting or restructuring an existing business.
2. You’ve just transferred old assets from another entity.
3. You’re running a business model that lacks innovation.

10. The Incorporation Date Window

Originally, only startups incorporated after 1 April 2016 were eligible. This window has been extended several times, including in Budget 2025, which allowed more startups (incorporated up to March 2025) to claim the benefit.

11. Compliance Is Still Mandatory

“Zero tax” doesn’t mean zero compliance. You still need to:

1. File your income tax returns.
2. Maintain proper books of accounts.
3. File Form 10-IAC with supporting documents.

12. Step-by-Step Process to Claim the Benefit

Here’s a simplified guide:

1. Get DPIIT recognition on the Startup India portal.
2. Apply for tax exemption under Section 80-IAC.
3. Submit Form 10-IAC via the Income Tax e-filing portal.
4. Provide supporting documents like financials and incorporation details.
5. Wait for approval from the Inter-Ministerial Board (IMB).
6. Once approved, claim your deduction in your ITR.

13. Do You Need Certification or Approvals?

Yes. IMB approval is required. This is not automatic. Without IMB certification, you can’t claim the benefit—even if you’re DPIIT recognized.

14. Common Mistakes Startups Make

1. Delaying DPIIT registration.
2. Choosing the wrong 3-year block.
3. Misreporting turnover figures.
4. Assuming losses can be “carried forward” under this scheme (they can’t).

15. Recent Updates and Extensions (Budget 2025)

Budget 2025 extended the incorporation window, meaning more startups are eligible now. It also clarified that the turnover threshold and 3-year block rules remain unchanged.

16. Final Verdict: Jackpot or Just a Good Deal?

So, is it a jackpot? Not exactly. Think of it like a free highway pass—you can zoom ahead, but only if your car (startup) meets the rules and you take the right entry gate (DPIIT recognition and IMB approval).

It’s an excellent opportunity, but not every startup qualifies. And even if you do, planning the timing of your tax holiday is crucial.

17. FAQs

1. Can I claim 80-IAC benefit if my startup has losses?
No. The benefit applies only when you have profits to deduct.

2. Do I need to apply every year for the benefit?
No. Once your 3-year block is approved, you simply claim it in your ITR.

3. Can I pick non-consecutive years for the exemption?
No. The 3 years must be consecutive.

4. What happens if my turnover crosses ₹100 crore in one year?
You become ineligible for that year and cannot claim the exemption.

5. Is DPIIT recognition enough, or do I need IMB approval too?
You need both DPIIT recognition and IMB approval to claim 80-IAC benefits.

✅ In summary, the 3 years of zero tax under 80-IAC for eligible startups is real—but only if you play by the rules. Startups that plan ahead, apply properly, and choose the right block of years can save big on taxes and reinvest those funds into scaling their dream.

Post no : 560

Startup India tax exemption
Section 80-IAC zero tax
3 years tax holiday for startups
Income Tax Act India
DPIIT recognized startup
Startup tax benefits India
Zero corporate tax for startups
Indian startup ecosystem
Startup funding and taxation
Tax relief for startups
Section 80IAC eligibility
Business tax planning India
Fintech startup tax benefits
Government schemes for startups
Startup business growth