How To Claim Section 80iac Exemption Under Income Tax Act
The Government through this initiative aims to empower Startups to grow through innovation and design.
Tax exemption under Section 80IAC of the Income Tax Act is one of the benefits from the various benefits provided to startups under Startup India Scheme.
In this article, we will discuss in detail, how can a startup take this exemption, what are the benefits and eligibilities to apply for the same.
Eligibility Criteria for applying to Income Tax exemption (80IAC):
The entity should be a DPIIT recognized Startup.
Only Private limited or a Limited Liability Partnership is eligible for Tax exemption under Section 80IAC
The Startup should have been incorporated on or after 1st April 2016.
Start-up is engaged in innovation, development or improvement of products or processes or services or a scalable business model with a high potential of employment generation or wealth creation.
What is a DPIIT recognized Startup:
As laid down in the Notification No. G.S.R. 127 (E) dated 19.02.2019 issued by Department for Promotion of Industry and Internal Trade (DPIIT),the following will be considered as a Startup :-
- The Startup should be incorporated as a private limited company or registered as a partnership firm or a limited liability partnership in India and satisfies following 3 conditions:
- Turnover should be less than INR 100 Crores in any of the previous financial years.
- An entity shall be considered as a startup up to 10 years from the date of its incorporation.
- The Startup should be working towards innovation/ improvement of existing products, services and processes and should have the potential to generate employment/ create wealth. An entity formed by splitting up or reconstruction of an existing business shall not be considered a “Startup”.
- Furthermore, an entity that is created by splitting or reconstructing an existing business unit is not considered a startup. Also, a business entity shall cease to exist as a startup:
- once it completes 10 years from the date of incorporation or registration and
- if its turnover for any of the previous financial years exceeds Rs. 100 crores.
Post getting recognition a Startup may apply for Tax exemption under section 80 IAC of the Income Tax Act. Post getting clearance for Tax exemption, the Startup can avail tax holiday for 3 consecutive financial years out of its first ten years since incorporation
In order to get Tax exemption under section 80 IAC of the Income Tax Act, the startup may Register on the “Startup India portal”.
Procedure for registration
The interested entities are required to create a login id on Startup India portal using the following details:
Application for exemption under section 80IAC can be made by logging in the Startup India Portal through this login credentials.
Details required to make the application for exemption under section 80IAC are:
- Memorandum of association (for Pvt Ltd) or LLP Deed (for LLP)
- Board Resolution (if any)
- Annual Accounts & Income Tax returns of the startup for the last three financial years. (The Balance Sheet and the Profit and Loss Statement must be CA Certified)
- If your startup was incorporated on 1st April 2018 or later, Income Tax Returns (ITR) is not mandatory. For startups incorporated earlier, ITR is mandatory.
- Startup Video Link. The video should cover the following aspects:
- The video should ideally be of 2-3 minutes and be no longer than 5 minutes
- showcase the working of the product(s)prototype/proof-of-concept developed by startup
- If startup is a product or software-based startup then showcasing a demonstration/prototype/walk-through of the product(s)/software product(s) developed by startup is compulsory.
- If startup provide software or technology services such as website development, application development, developing white-label software products for clients, then please showcase a demonstration/prototype/walk-through of the product(s) developed for key clients
- Also showcase the market traction that your product/service has generated through either online customer reviews, client testimonials (video/text are acceptable), or any other similar appreciation/feedback received
Pitch deck – the pitch deck shall include the following details:
- Information about the product/service offering of your startup
- Brief about how is your startup innovative and/or scalable (Uniqueness/USP of the startup that differentiates from its competitors in the market)
- Director details and their educational qualification, professional experience, and formal role in the startup/current designation (if any)
- Shareholding pattern as on the date of filling this application
- Directors and Shareholders’ citizenship details
- Team details – current role, education, and professional experience
- Details about adherence to the specific government approvals required by the startups such as FSSAI registration, guidelines set by Bureau of Indian Standards
- Revenue model i.e. details of how the startup generates revenue
- Funding received from private investors or Angel/VC funds (Yes/No); if yes, please add names and details of the investors
- If any support (monetary/non-monetary) is received from Central or State Government Ministries/Departments/PSUs/Incubators
- Details of any public or private sector awards won by the startup
- Number of people directly employed with your startup
- Number of customers/clients – Paying customers/users with a copy of at least one Contract/Work-Order/MoU or the number PlayStore/AppleStore downloads in case of mobile applications along with a screenshot of the app listing on these platforms
- Link to your startup’s website
- Screenshots/images of your product/website
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