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

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