Section 80-IAC of the Income Tax Act provides tax benefits to start-ups in India. This section aims to promote entrepreneurship by offering deductions to eligible companies. It thus makes it easier for them to grow and succeed.
What is Section 80 IAC?
Introduced in 2016, this section allows eligible start-ups to claim a tax deduction of 100% on their profits for 3 consecutive assessment years out of the first ten years of their operation. This means that if your start-up meets the criteria, you can save a significant amount on taxes. You can reinvest this amount back into the business.
Who is Eligible?
To qualify for this deduction, your start-up must meet certain conditions:
- Registration: You must register the start-up with the Department for Promotion of Industry and Internal Trade (DPIIT).
- Business Type: It should be engaged in innovation, development, or improvement of products or processes, or provide services that are not already available in the market.
- Turnover Limit: The annual turnover of the start-up should not exceed ₹100 crores.
- Incorporation Date: The start-up must be incorporated between April 1, 2016, and March 31, 2024.
Tax Benefit Under Section 80-IAC:
The primary benefit of this section is that eligible startups can claim a deduction of 100% of their profits for three consecutive assessment years. This means that if a startup makes a profit, it can reduce its taxable income significantly. This can lead to substantial tax savings.
Example:
For example, a tech startup, “Tech Innovations Pvt. Ltd.,” was incorporated in 2021. In the financial year 2023-24, it earned a profit of ₹50 lakh. The company meets all the eligibility criteria under Section 80-IAC.
- Profit: ₹50,00,000
- Deductions under Section 80-IAC: 100% of profit = ₹50,00,000
Since “Tech Innovations Pvt. Ltd.” can claim a deduction of ₹50 lakh, its taxable income becomes zero for that financial year. This means it pays no income tax. This allows the company to reinvest that money back into the business for growth, hiring, or product development.
Conclusion:
Section 80 IAC is a powerful incentive for new businesses in India. By offering substantial tax deductions, it encourages entrepreneurship and innovation. So, if you’re a start-up looking to maximize your financial resources, understanding and utilizing this section can be a game changer. Make sure to keep all documentation and registration in order to take full advantage of the benefits available under this section.
– Ketaki Dandekar (Team Arthology)
Read more about the provisions for Startups here – https://cleartax.in/s/section-80iac