Tuesday, May 2, 2017

Video & FAQ on Deduction u/s 80IAC for Startups

Section 80IAC of the Income Tax Act provides 100% tax deduction to eligible startups under certain conditions. For easy understanding of the provision , a video is created along with FAQ on the deduction provision .


Video on Startup Deduction u/s 80IAC




FAQ on Section 80IAC

Section 81IAC of the Income Tax Act is as under :


80-IAC. (1) Where the gross total income of an assessee, being an eligible start-up, includes any profits and gains derived from eligible business, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to one hundred per cent of the profits and gains derived from such business for three consecutive assessment years.

(2) The deduction specified in sub-section (1) may, at the option of the assessee, be claimed by him for any three consecutive assessment years out of five  years beginning from the year in which the eligible start-up is incorporated.(3) This section applies to a start-up which fulfils the following conditions, namely:—(i) it is not formed by splitting up, or the reconstruction, of a business already in existence:

Provided that this condition shall not apply in respect of a start-up which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as referred to in section 33B, in the circumstances and within the period specified in that section;

(ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose.

Explanation 1.—For the purposes of this clause, any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if all the following conditions are fulfilled, namely:—

(a) such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India;

(b) such machinery or plant is imported into India;

(c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee.Explanation 2.—Where in the case of a start-up, any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for the purposes of clause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with.(4) The provisions of sub-section (5) and sub-sections (7) to (11) of section 80-IA shall apply to the start-ups for the purpose of allowing deductions under sub-section (1).Explanation.—For the purposes of this section,—(i) "eligible business" means a business which involves innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property;(ii) "eligible start-up" means a company or a limited liability partnership engaged in eligible business which fulfils the following conditions, namely:—(a) it is incorporated on or after the 1st day of April, 2016 but before the 1st day of April, 2019;(b) the total turnover of its business does not exceed twenty-five crore rupees in any of the previous years beginning on or after the 1st day of April, 2016 and ending on the 31st day of March, 2021; and(c) it holds a certificate of eligible business from the Inter-Ministerial Board of Certification as notified in the Official Gazette by the Central Government;(iii) "limited liability partnership" means a partnership referred to in clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009).

Who can get deduction u/s 80IAC ?



Only eligible startups can claim dededuction u/s 80IAC


Who is eligible startup for tax deduction ?

Eligible start-up  means a company or a limited liability partnership
Carrying on business which involves
  • innovation,
  • development,
  • deployment or commercialisation of new products,
  • processes or
  • services driven by technology or intellectual property;


Is that all ? Any other conditions ?


Yes , following conditions must also be satisfied by those company or LLP
  1. it is incorporated on or after the 1st day of April, 2016 but before the 1st day of April, 2019;
  2. the total turnover of its business is less than 250 million ( 25 Crore) in any of the previous years FY 2016-17 to FY 2020-21 and
  3. it holds a certificate from Inter-Ministerial Board of Certification.
How much deduction is allowable to a startup ?


Deduction is 100%  of profit for three consecutive assessment years. Startup can select beginning year within first 7 years of starting the business.
Who are not eligible for claiming deduction ?


Following types of startups not eligible for claiming deduction u/s 80IAC


  1. Startup company or LLP is  not formed by splitting up, or the reconstruction, of a business already in existence.However, start-up formed due to restructuring of business  as per condition u/s 33B is allowed deduction u/s 80IAC.
  2. Starups it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. However, machinery used out side India is allowble if 



  1. Plant & Machinery was not utilized in India by that assessee
  2. Plant & Machinery is imported .
  3. Depreciation was claimed on that

Friday, February 3, 2017

Finance Bill 2017- Two Sure Shot Boost to Startups in India


Finance Bill 2017 presented to Lok Sabha by FM contains two definite tax benefits proposed for the  Startups of India . The push by this government for setting up startup ecosystem is real and solid.

Saturday, December 24, 2016

No Tax Issues for Startups Charging Premium on Issue of Shares !


Funding for starstups in India is now  unshackled from the tax issues that other private companeis face . Earlier this blog had published Relaxation to Startups on Sweet Equity . Now there is another good news on fuund raising front . The fact that the startups gets funding in the begining more on a vision of a business , rather than on actual result . Most of the startups in the begining incur losses  and even from the planning perspective , their brak even years are much later set. So , if in the begining you see the worth of shares of company minus the future or vision of growth in future , the Fair Market Value of each share will be quite low and not even near to the price per share on which the Investors have brought in fundd. This scenario however was raising an income tax issue .

Friday, October 21, 2016

Foreign Investment Norms for Startups Relaxed !

Foreign Venture Capital Funds (FVCF ) registered with SEBI are now allowed to invest in Indian startups without RBI approval. This is a new step by government to make available easy foreign money to Indian startups. So , now FVCF can subscribe equity or equity linked instrument or debt instrument issued by an Indian ‘startup’ irrespective of the sector in which the startup is engaged. 

Friday, September 30, 2016

Startups Can Accept Deposits upto 2.5 Million as Convertible Note Without Charging to Assets !

This is another good news for startups of India . The Ministry of Corporate Affairs has relaxed the rule for acceptance of deposits vide notification No GSR 639 (E) dated 29/06/2016 under the Companies (Acceptance of Deposits ) Amendment Rule 2016 . This amendment has  increased the list of exempted categories of exempted deposits under  Companies (Acceptance of Deposits) Rule 2014

Wednesday, August 3, 2016

Startups Can Open Foreign Currency Accounts Abroad Easily !

Another relief to startups who earns by exporting of goods or service can now open the foreign exchange accounts abroad and operate it. Reeves Bank of India has issued circular no 77[(2)/10(R)] dt 23/06/2016 . This is another great relief  as pert of startup India program .
Read the circular below :

Friday, July 29, 2016

Relaxation to Start-ups for ESOPs & Sweet Equity Shares

The government has provided benefit to start ups under Companies Act by relaxing the norm to issue sweet equity shares and shares under ESOPs. This has been done by the latest Companies (Share Capital and Debentures) Third Amendment Rules, 2016 (Amendment Rules) , amending the Rule 8 that govern sweet equity shares issuance and Rule 12 of Rules 2014  that pertains to issue of shares under ESOP. Let us analyze the changes one by one .