80 IAC TAX Exemption for Startup

 

In India, Section 80-IAC of the Income Tax Act, 1961, holds significance for startups seeking tax benefits and exemptions. It’s a crucial component of the government’s Startup India initiative, designed to encourage entrepreneurship and innovation. With the help of this initiative, startups can get income tax exemption of three consecutive years under section 80 IAC.

Section 80-IAC of the Income Tax Act serves as a catalyst for startups in India, offering enticing tax incentives. It fosters innovation and entrepreneurship by providing a tax reprieve on profits and facilitating the utilization of losses, ultimately nurturing the growth and advancement of startups within the country.

Nonetheless, it is imperative for startups to stay abreast of the latest regulatory updates and seek guidance from tax experts or government agencies to ensure compliance with eligibility criteria and reporting obligations.

Eligibility Criteria for claiming 80 IAC Tax exemption of startup.

1. Recognition: To unlock the tax advantages provided by Section 80 IAC tax exemption, a startup must first secure recognition from the Department for Promotion of Industry and Internal Trade (DPIIT). DPIIT grants recognition based on specific parameters, including innovation, technology-driven activities, and more.
2. Entity Type: This tax exemption applies exclusively to private limited companies and limited liability partnerships (LLPs). Other business structures do not fall within the purview of this provision.
3. Incorporation Date: For a startup to be eligible, it must have been incorporated after April 1, 2016. Essentially, only startups founded on or after this date can apply for the 80 IAC tax exemption.
4. Turnover: Turnover of the entity for any of the financial years since incorporation/ registration has not exceeded (100) one hundred crores.
5. Entity is working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation.

Read Also-How to apply for startup India Registration Certificate (DPIIT) 

Advantages of 80 IAC Tax Exemption for Startups.

The Section 80 IAC tax exemption in India extends several advantages to qualifying startups, aiming to foster entrepreneurship, innovation, and the overall growth of startup ventures in the country.

1. No Taxes on Profits: Startups can skip paying income tax on their profits for up to three years during their initial ten years. This helps them keep more of their earnings and invest back into the business.
2. Offset Losses: If a startup faces losses in its early years, these losses can be used later to reduce taxes when the business becomes profitable. It’s like a financial safety net.
3. Encouraging Innovation: The tax exemption supports startups that are focused on creating new and innovative products or services using technology. It’s a thumbs-up for innovation.
4. Boosting Entrepreneurship: It encourages people to start their own businesses by providing tax breaks in the early years. This means more startups and more opportunities for entrepreneurs.
5. Attracting Investors: The tax benefits make startups more appealing to investors, making it easier for startups to get the funding they need to grow.
6. Contributing to Economic Growth: By supporting startups, the government is helping to create jobs and stimulate the economy. It’s good for everyone.
7. Rules and Reporting: To enjoy these benefits, startups must follow specific rules and report to the authorities. This keeps things fair and transparent.

Documents required for application of 80 IAC Tax Exemption of Startups.

To apply for the 80 IAC tax exemption for startups in India, following documents are required-

1. DPIIT Recognition Certificate: This is crucial and comes from the Department for Promotion of Industry and Internal Trade (DPIIT). It shows that your startup meets the requirements for tax benefits.
2. Certificate of Incorporation: This proves your business is officially registered.
3. MoA and AoA: These documents outline your company’s structure and rules.
4. Financial Statements: These include balance sheets, profit and loss statements, and cash flow statements for the relevant years. They show your startup’s financial health.
5. PAN Card: You’ll need a copy of your startup’s Permanent Account Number (PAN) card.
6. Director/Partner ID: Copies of Aadhaar cards or passports of all directors or partners.
7. Address Proof: A utility bill or rental agreement confirming your registered office address.
8. Shareholding Details: Information about your shareholders, including names, PANs, and addresses.
9. Audited Reports: These are financial reports verified by a certified chartered accountant.
10. Income Tax Returns: Copies of income tax returns filed by your startup.
11. Board Resolutions: These show your intent to apply for Section 80 IAC tax exemption benefits.
12. Pitch Deck: A detailed plan explaining your startup’s activities and growth strategy.
13. Video Pitch: Sometimes required to prove your startup’s innovative and tech-focused work.

Guidelines for Pitch Deck and Video Pitch for 80 IAC tax Exemption

Pitch Deck:

Please ensure that you provide all the following details in your pitchdeck:

✓ Information about the product/service offering of your startup

✓ Brief about how is your startup innovative and/or scalable (Uniqueness/USP of the startup that differentiates from its competitors in the market)

✓ Director details and their educational qualification, professional experience, and formal role in the startup/current designation (if any)

✓ Shareholding pattern as on the date of filling this application

✓ Directors and Shareholders’ citizenship details

✓ Team details – current role, education, and professional experience

✓ Details about adherence to the specific government approvals required by the startups such as FSSAI registration, guidelines set by Bureau of Indian Standards

✓ Revenue model i.e. details of how the startup generates revenue

✓ Funding received from private investors or Angel/VC funds (Yes/No); if yes, please add names and details of the investors

✓ If any support (monetary/non-monetary) is received from Central or State Government Ministries/Departments/PSUs/Incubators

✓ Details of any public or private sector awards won by the startup

✓ Number of people directly employed with your startup

✓ Number of customers/clients – Paying customers/users with a copy of at least one Contract/Work-Order/MoU or the number PlayStore/AppleStore downloads in case of mobile applications along with a screenshot of the app listing on these platforms

✓ Link to your startup’s website

✓ Screenshots/images of your product/website

Note: Pitch deck uploaded must be in a PDF format.

Video Pitch:

Please ensure that you provide all the following details in your Video link:

✓ The video should ideally be of 2-3 minutes and be no longer than 5 minutes

✓ Please showcase the working of the product(s)prototype/proof-of-concept developed by your startup

✓ If you are a product or software-based startup then showcasing a demonstration/prototype/walk-through of the product(s)/software product(s) developed by you is compulsory

✓ If you provide software or technology services such as website development, application development, developing white-label software products for clients, then please showcase a demonstration/prototype/walk-through of the product(s) developed for your key clients

✓ Please also showcase the market traction that your product/service has generated through either online customer reviews, client testimonials (video/text are acceptable), or any other similar appreciation/feedback received

Note: Please upload the video is uploaded on a third-party video hosting platform such as YouTube or Vimeo. In case you are uploading the video on Google Drive please make sure that it is NOT access restricted.

 

How to apply for 80 IAC Tax Exemption in India for startup?

Visit startup India official website, and click on Apply on Income tax Exemption as shown below-

After click on the Income Tax Exemption then you will get the Application form for 80 IAC tax Exemption.

Click here to get full application form.

After logging in to the portal and selecting ‘tax exemption’ you need to fill in the form.

1. Name of Startup;
2. Date of Incorporation;
3. Incorporation/registration number;
4. Address and Business location;
5. Nature of Business (whether LLP or PLC);
6. DIPP number; and
7. Contact Details (namely Phone No., E-mail ID, and PAN number of entity).

You can also watch below video to get understand about the live process for application of 80 IAC Tax Exemption for startup-

click here-

 

Frequently Asked Questions

1. What is the 80-IAC tax exemption for startups?

• The 80-IAC tax exemption is a provision under the Income Tax Act, 1961, that offers tax benefits to eligible startups in India. It encourages innovation and entrepreneurship by providing a tax holiday and other advantages.

2. Who is eligible for the 80-IAC tax exemption?

• Startups that have obtained recognition from the Department for Promotion of Industry and Internal Trade (DPIIT), are registered as private limited companies or LLPs, and were incorporated after April 1, 2016, are typically eligible.

3. What is a tax holiday, and how long does it last under 80-IAC?

• A tax holiday means that during a specific period, usually three consecutive financial years within the startup’s first ten years since incorporation, the startup is exempt from paying income tax on its profits.

4. Can losses be carried forward under this exemption?

• Yes, startups can carry forward and offset losses incurred during the tax holiday period against future profits. This provides a financial cushion during the early years.

5. How can I apply for the 80-IAC tax exemption?

• You can apply by providing necessary documents, including DPIIT recognition, financial statements, PAN card, and other compliance documents. It’s advisable to consult a tax professional for guidance on the application process.

6. What types of startups benefit from 80-IAC?

• Startups engaged in innovation, technology-driven activities, and the development of new products, processes, or services driven by technology or intellectual property are the primary beneficiaries.

7. What are the reporting and compliance requirements for startups availing of this exemption?

• Startups must comply with specific conditions and reporting requirements set by the authorities to maintain eligibility for tax benefits. These may include annual reporting to DPIIT.

8. Can a startup lose its 80-IAC tax exemption?

• Yes, if a startup fails to meet the eligibility criteria or comply with the required conditions, it may lose its tax exemption under 80-IAC.

9. Are there any changes or updates to the 80-IAC tax exemption?

• Tax laws and regulations can change over time. It’s essential for startups to stay updated with the latest government notifications and consult with tax professionals for current information.

10. How does the 80-IAC tax exemption benefit the Indian startup ecosystem?

• This tax exemption encourages entrepreneurship, innovation, and investment in startups, ultimately fostering economic growth, job creation, and the development of a vibrant startup ecosystem in India.