Startup Tax Holiday Lives On: Section 80-IAC Incorporation Window Extended to 1 April 2030

The single most valuable concession in India's start-up tax code was due to close its doors on 1 April 2025. The Finance Act 2025 has instead pushed that deadline out by five full years. Under the amended Section 80-IAC of the Income-tax Act, 1961, an eligible start-up incorporated on or after 1 April 2016 but before 1 April 2030 can still claim a 100% deduction of its profits for any three consecutive years inside its first ten assessment years. For a founder weighing incorporation in FY 2026-27 or FY 2027-28, the holiday that looked gone is squarely back on the table.

This guide walks through exactly what the section grants, a worked example showing the cash a three-year holiday actually releases, the errors that cost start-ups the deduction during Income Tax scrutiny, and the questions founders ask most often.

What the Section Says

Section 80-IAC permits an eligible start-up to deduct an amount equal to 100% of the profits and gains derived from its eligible business. The deduction is available for any three consecutive assessment years out of the ten years beginning from the year in which the start-up is incorporated, and the assessee chooses which three. Because losses are common in the early years, the law lets you defer the holiday to the three years you expect to be most profitable.

Four conditions, all read together, decide eligibility:

The "eligible business" tested here is one that works on innovation, development or improvement of products, processes or services, or a scalable business model with a high potential of employment generation or wealth creation. Two anti-abuse rules in sub-section (3) apply: the start-up must not be formed by splitting up or reconstruction of a business already in existence, and it must not be formed by transferring plant or machinery previously used (a 20% tolerance for second-hand assets is allowed, mirroring Section 80-IA). The statutory text sits in the Income-tax Act, 1961 on India Code and on the Income Tax Department portal.

One date governs the whole benefit: under Section 80AC, no deduction under Section 80-IAC is allowed unless the return of income is filed on or before the due date specified in Section 139(1). File even one day late and the entire holiday for that year is forfeited.

Worked Example

Consider Lumora Analytics Pvt Ltd, a DPIIT-recognised company incorporated on 15 June 2026. Its first assessment year is AY 2027-28, and its ten-year window therefore runs from AY 2027-28 to AY 2036-37. Like most product start-ups it burns cash early, turns the corner in year four, and scales fast thereafter. The founders choose to claim the holiday in the three most profitable consecutive years: AY 2032-33, AY 2033-34 and AY 2034-35.

In each of the three chosen years the 100% deduction wipes the normal taxable business income to nil, so tax computed under the normal provisions is zero. But a company claiming Chapter VI-A deductions is still liable to Minimum Alternate Tax (MAT) under Section 115JB at 15% of book profit, plus surcharge and cess. For a book profit between Rs 1 crore and Rs 10 crore the surcharge is 7%, so the effective MAT rate is 15% x 1.07 x 1.04 = 16.692%. The table below contrasts the normal tax a company would pay with no holiday (base corporate rate of 25%, applicable to domestic companies with turnover up to Rs 400 crore, plus 7% surcharge and 4% cess, giving an effective 27.82%) against the MAT actually payable with the 80-IAC deduction in place.

Across the three-year holiday Lumora keeps Rs 1.78 crore of cash it would otherwise have paid as tax. Crucially, the Rs 2.67 crore of MAT is not lost: it becomes a MAT credit under Section 115JAA that can be set off against normal tax in any of the following 15 assessment years, once the holiday ends and the company pays full tax again. The deduction therefore delivers both a permanent saving (the gap between 27.82% and 16.692%) and a timing benefit (the MAT credit). You can model your own figures with the income tax calculator and compare corporate regimes using the old vs new regime calculator.

A profitable start-up should also weigh the Section 115BAA alternative. A domestic company may instead opt for the concessional 22% regime (effective 25.17% with 10% surcharge and 4% cess), which is exempt from MAT but bars Section 80-IAC entirely. For a company confident of three high-profit years, the 80-IAC route usually wins on cash; for one with modest, steady profits and no near-term holiday to claim, the 22% flat rate can be simpler.

Common Mistakes

The deduction is generous, which is exactly why assessing officers examine 80-IAC claims closely. These are the errors that surface most often in scrutiny.

Treating DPIIT recognition as the end of the road. DPIIT recognition is necessary but not sufficient. Section 80-IAC additionally requires a certificate of eligible business from the Inter-Ministerial Board (IMB). A start-up that claims the deduction on the strength of DPIIT recognition alone, without the IMB certificate, will see the claim disallowed. The IMB application is filed through the Startup India portal and is a separate approval from recognition.

Missing the Section 139(1) due date. Because Section 80AC makes timely filing a precondition, a belated return under Section 139(4) cannot carry an 80-IAC claim. A company that files after the due date loses the entire holiday for that year, even if every substantive condition is met. For companies, the due date is typically 31 October of the assessment year; verify the year's notified date before filing.

Claiming the holiday in a loss or low-profit year. The three consecutive years are irrevocable once chosen. Founders who claim in the first profitable year, only to post far larger profits two years later, waste the deduction on small sums. The gross total income picture across the ten-year window should be projected before the three-year block is locked.

Forgetting MAT and the AMT on LLPs. The deduction zeroes normal tax, but not MAT (companies, 15%) or Alternate Minimum Tax (LLPs, 18.5% of adjusted total income under Section 115JC, plus surcharge and cess). Cash-flow plans that assume a true zero-tax year are wrong; budget for the minimum tax, and track the resulting credit.

Breaching the Rs 100 crore turnover line. The turnover test applies to the specific previous year for which the deduction is claimed, not merely the year of incorporation. A start-up that crosses Rs 100 crore of turnover in a holiday year loses the deduction for that year, so fast scalers should sequence their chosen years to land before turnover breaches the cap.

Reconstruction and used-asset traps. A start-up spun out of an existing group business, or kitted out mainly with second-hand plant beyond the 20% tolerance, falls foul of sub-section (3). Document the provenance of assets and the genuinely new nature of the business at incorporation.

FAQ

Who extended the Section 80-IAC window to 1 April 2030?

The Finance Act 2025 extended the incorporation cut-off from before 1 April 2025 to before 1 April 2030, a five-year extension. A start-up incorporated on or after 1 April 2016 and before 1 April 2030, meeting the other conditions, remains eligible for the 100% profit deduction.

Can an LLP claim Section 80-IAC, or only a company?

Both a company and a limited liability partnership can claim the deduction, provided each is DPIIT-recognised, holds the IMB certificate, was incorporated in the eligible window, and keeps turnover within Rs 100 crore. Ordinary partnership firms and proprietorships are excluded. An LLP claiming the holiday pays AMT at 18.5% under Section 115JC.

How many years of tax holiday does the section give?

A 100% deduction of profits for any three consecutive assessment years, selected by the start-up out of the ten years beginning from its year of incorporation. It is three years of relief inside a ten-year window, not ten years of relief.

Does the holiday mean zero tax for three years?

Not quite. It reduces tax under the normal provisions to nil, but a company still pays MAT at 15% of book profit (plus surcharge and cess), and an LLP pays AMT at 18.5%. That minimum tax becomes a credit that can be carried forward and set off for up to 15 assessment years.

What turnover limit applies to Section 80-IAC?

Total turnover of the business must not exceed Rs 100 crore in the previous year relevant to the assessment year for which the deduction is claimed. The test is applied year by year across the holiday, not only at incorporation.

Is DPIIT recognition enough to claim the deduction?

No. DPIIT recognition establishes start-up status, but Section 80-IAC additionally requires a certificate of eligible business from the Inter-Ministerial Board. Both approvals must be in place before the deduction is claimed.

Can a start-up that opts for the 22% concessional regime still claim 80-IAC?

No. A company that opts for the Section 115BAA concessional rate of 22% forgoes Chapter VI-A deductions, including Section 80-IAC. The choice is between the flat 22% rate (exempt from MAT) and the 80-IAC holiday (subject to MAT); a start-up should run both before deciding.