The startup tax holiday lets an eligible company or LLP deduct 100% of the profits of its eligible business for three consecutive years, chosen from its first ten years. Under the Income-tax Act, 1961 this was section 80-IAC, and most founders still call it that. From 1 April 2026 the Income-tax Act, 2025 applies, and the deduction continues under the new Act; check the current section and conditions with your adviser.
Two things are needed before you can claim it: DPIIT recognition, and a separate certificate of eligible business from the Inter-Ministerial Board (IMB). Recognition alone does not make profits tax-free. If you have not yet been recognised, our DPIIT recognition assistance is where the process starts.
Eligibility checklist
| Condition | What the deduction asks | What to check |
|---|---|---|
| Entity | A company or an LLP | Partnership firms and cooperatives can be recognised by DPIIT but cannot claim this deduction |
| Date of incorporation | On or after 1 April 2016 and before 1 April 2030 | Your certificate of incorporation date |
| Turnover | Total turnover of the business not above Rs 100 crore in the tax year of the claim | Tested year by year, for each year you claim |
| Certificate | Holds a certificate of eligible business from the Inter-Ministerial Board | Apply after DPIIT recognition |
| Not a reshuffle | Not formed by splitting up or reconstructing an existing business | A new company that takes over a founder’s existing proprietorship needs a careful look |
| Not old machinery | Not formed by transferring plant or machinery previously used for any purpose | Up to 20% of the total value may be previously used; some imported second-hand machinery is treated as new |
The Startup India recognition page still describes the benefit under its old name, limited to private limited companies and LLPs incorporated after 1 April 2016. If you are about to form an entity mainly to claim the holiday, a private limited company or LLP is the route; a partnership firm will not do.
Two turnover limits, not one
DPIIT recognition now allows turnover up to Rs 200 crore (Rs 300 crore for deep tech) under the 2026 definition. The tax holiday’s own limit is Rs 100 crore. A startup between the two can stay recognised and keep the non-tax benefits, but cannot claim the deduction for a year in which its turnover is above Rs 100 crore.
How the three-out-of-ten rule works
You choose any three consecutive tax years out of the ten beginning with the year of incorporation. The choice matters because most startups make losses in the early years, and a deduction of 100% of a loss is worth nothing.
For example, take a company incorporated in tax year 2021-22 that expects its first real profits in 2028-29. Its ten-year window runs from 2021-22 to 2030-31. It could choose 2028-29, 2029-30 and 2030-31, the last three years of the window. Choosing earlier years, when it had small profits or losses, would waste the holiday. The years must be consecutive, so a loss year in the middle of the chosen block still uses up one of the three.
Getting the IMB certificate
The Inter-Ministerial Board decides whether your business is an “eligible business” for the tax holiday. The application is made through the Startup India portal after recognition. The board looks harder at the business than the recognition process does, so expect to show:
- what the product or service is and what is innovative about it;
- how it creates jobs or wealth and how it will scale;
- evidence such as revenue, users, patents or trademarks filed, awards or funding;
- audited financial statements and income tax returns for the years so far.
Apply well before the year in which you want to start claiming. The board can ask for more information or reject the application, and the deduction cannot be claimed without the certificate.
Points that change the value of the holiday
The concessional company tax rate
Under the 1961 Act, a company that opted for the concessional corporate rate (section 115BAA) could not also claim the 80-IAC deduction. Work out both options before you opt for a lower rate, and check how the 2025 Act treats the combination for your company.
Tax on book profits
Under the 1961 Act, a company claiming 80-IAC could still owe minimum alternate tax on its book profits. Ask your tax adviser how the 2025 Act’s equivalent applies before you count on a zero tax bill.
Startups part-way through their three years
If you started claiming under section 80-IAC in an earlier year and your three years run past 31 March 2026, the remaining years are now claimed under the new Act. Confirm with your tax adviser how the transition provisions apply to your case, and keep the IMB certificate and earlier returns together.
Frequently asked questions
Does the holiday cover all income?
No. It covers profits and gains derived from the eligible business, not other income such as interest on surplus funds.
Can an LLP claim it?
Yes. The deduction covers companies and LLPs that meet the other conditions.
Is the deduction automatic once we have the certificate?
No. It has to be claimed in the income tax return for each of the chosen years, and the turnover condition is tested each time.
Complianto (complianto.in), operated by Mentorcorp Private Limited, is a private consultancy and is not affiliated with any government body. We do not issue official documents. We charge a professional fee for application assistance and advisory services. Applicants can apply directly to the government without our fees via the official portals: MCA (mca.gov.in), Income Tax (incometax.gov.in), GST (gst.gov.in), MSME (udyamregistration.gov.in), FSSAI (foscos.fssai.gov.in), Startup India (startupindia.gov.in), and IP India (ipindia.gov.in).
This article is general information, not legal or tax advice.
