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Tax Exemption for Startup || 3-year tax Exempted || Under Section 80-IAC of the Income-tax Act,1961

Introduction

In the dynamic landscape of business, startups play a pivotal role in driving innovation, fostering economic growth, and creating employment opportunities. Recognizing their significance, the Income-tax Act, 1961 introduced Section 80-IAC, offering a significant tax exemption to eligible startups. Let's delve deeper into this transformative provision and understand how it can propel your startup towards success.

 

Understanding Section 80-IAC

Section 80-IAC of the Income-tax Act, 1961, enacted on April 1, 2017, serves as a catalyst for the growth of startups during their nascent stages. It provides eligible assessees with a remarkable opportunity to claim 100% tax deductions for three consecutive years.

 

Purpose of Section 80-IAC

  • Fostering Growth: Section 80-IAC aims to facilitate the expansion of startups by providing them with crucial tax benefits.

  • Promoting Tax Compliance: By incentivizing startups to become genuine taxpayers, the provision aids in reducing tax evasion and fostering a culture of fiscal responsibility.

  • Encouraging Innovation: The provision encourages startups to invest in innovation, research, and development, thereby fostering a vibrant entrepreneurial ecosystem in India.

 

Benefits of Section 80-IAC

  1. 100% Tax Deduction: Startups can claim a deduction equivalent to 100% of the profits and gains derived from eligible businesses for three consecutive assessment years.

  2. Elimination of Advance Tax: With the tax liability reduced to nil, startups are relieved from the burden of paying advance tax.

  3. Financial Flexibility: By lowering the taxable income, Section 80-IAC alleviates the financial strain on startups, enabling them to allocate resources more efficiently.


Eligibility Criteria

To qualify for tax exemption under Section 80-IAC, startups must fulfill the following criteria:


  1. Nature of Business: The startup must be engaged in an eligible business, involving innovation, development, or scalability with significant potential for employment generation or wealth creation.

  2. Date of Incorporation: The company or LLP must be incorporated between March 31, 2016, and April 1, 2025.

  3. Turnover Limit: The annual turnover of the startup should not exceed Rs. 100 Crore in the preceding assessment year.

  4. Exclusion Clause: Startups formed by segregating or reforming existing businesses are ineligible, except in specific cases of reconstruction due to natural calamities or unforeseen circumstances.

 

Application Process

Claiming tax exemption under Section 80-IAC involves the following steps:


  1. Startup India Registration: Log in to the Startup India portal and apply for the DPIIT recognition certificate.

  2. Claim Tax Exemption: Select the option to claim tax exemption and provide necessary details, including incorporation details, business nature, and contact information.

  3. Document Submission: Submit essential documents in PDF format, such as LLP deed, memorandum of association, financial statements, and income tax returns.

  4. Track Application: Monitor the progress of your application through the Startup India portal's dashboard.

 

Conclusion

Section 80-IAC of the Income Tax Act, 1961, serves as a cornerstone in nurturing the startup ecosystem in India. By offering substantial tax benefits, it empowers startups to innovate, grow, and contribute to the nation's economic prosperity. Embrace the opportunities presented by Section 80-IAC and embark on a journey towards entrepreneurial excellence.

 

Frequently Asked Questions

What is Section 80-IAC of the Income Tax Act?

Section 80-IAC provides eligible startups with a tax deduction of 100% on profits and gains derived from eligible businesses.

 

What is the quantum of exemption under Section 80-IAC?

Startups can avail of a 100% exemption on profits from eligible businesses for three consecutive financial years within the first ten years of incorporation.

 

How long does it take to get approval for tax exemption under Section 80-IAC?

The approval process typically takes 3-9 months, with the income tax department reviewing submitted information and documents. Applicants can track their application status through the Startup India portal.

  

Written By – Sandeep Rajbhar

Ph: 9038581472


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