Legal basis: Income-tax Act, 1961, Section 80-IAC (renumbered to Income-tax Act, 2025, Section 140 with effect from April 1, 2026) — Effective: April 1, 2026 for Tax Year 2026-27 onwards; Section 80-IAC continues to govern AY 2026-27 (FY 2025-26). Source: https://www.startupindia.gov.in. Last reviewed by CA Harun Raaj: September 2026.
If your startup holds DPIIT recognition, you may be leaving crores of profit untaxed — or you may be claiming a tax holiday you are not entitled to. The Income-tax Act, 2025 (ITA 2025), in force from April 1, 2026, has renumbered the startup tax holiday provision. Here is what founders and CFOs need to know before they file.
The Short Answer
The benefit has not changed. The section number has. The confusion — and the compliance risk — is real.
Key point: DPIIT recognition alone does not entitle a startup to the Section 80-IAC (now Section 140) tax holiday — a separate Inter-Ministerial Board (IMB) certificate is mandatory.
What the Benefit Is
The startup income tax holiday gives DPIIT-recognised eligible startups a 100% deduction on profits and gains for any 3 consecutive assessment years chosen from the first 10 years from the year of incorporation (Section 80-IAC, ITA 1961; Section 140, ITA 2025).
- Not a tax rate reduction. It is a full deduction — effectively zero income tax on eligible profit for the claimed years.
- Three consecutive years, founder's choice of window. You can choose when to begin (for example, AY 2 to AY 4, or AY 6 to AY 8), but once you start, the three years run consecutively.
- Turnover cap: ₹100 crore in any year for which the deduction is claimed.
- MAT still applies. Minimum Alternate Tax at 15% of book profit (Section 115JB, ITA 1961; Section 163, ITA 2025) continues even in holiday years.
ITA 2025: Section 80-IAC Becomes Section 140
The ITA 2025 came into force from April 1, 2026, governing Tax Year (TY) 2026-27 onwards. It consolidates and renumbers the 1961 Act — the substantive law is preserved, but section numbers change.
Key renumbering relevant to startups:
- Section 80-IAC (1961 Act) becomes Section 140 (ITA 2025).
- Section 192(1C) on ESOP TDS deferral becomes Section 392(3) read with Section 289(3) (ITA 2025).
For AY 2026-27 (FY 2025-26), the 1961 Act still applies — use Section 80-IAC in your return. The ITA 2025 provisions apply only from TY 2026-27 (April 1, 2026 onwards).
The Critical Distinction: DPIIT Recognition vs the IMB Certificate
There are two separate eligibility tests, and founders regularly conflate them.
Test 1: DPIIT recognition. Applied for through startupindia.gov.in. As of 2026, approximately 1.97 lakh startups hold DPIIT recognition.
Test 2: IMB certificate for Section 80-IAC / Section 140. A separate application reviewed by the Inter-Ministerial Board through the Startup India portal. The IMB evaluates innovation, scalability, and employment or wealth-creation potential, and approval is not automatic. As of 2026, approximately 3,700 startups hold IMB certification — roughly 1.9% of all DPIIT-recognised startups.
If you have DPIIT recognition but no IMB certificate, you cannot legally claim the Section 80-IAC / Section 140 deduction.
Eligibility Conditions (Section 80-IAC, ITA 1961 — for AY 2026-27)
- The company or LLP was incorporated or registered on or after April 1, 2016.
- Turnover in the year the deduction is claimed does not exceed ₹100 crore.
- The business involves innovation, development, deployment, or commercialisation of a new product, process, or service driven by technology or intellectual property.
- The entity holds DPIIT recognition.
- The entity holds an IMB certificate specifically for Section 80-IAC.
DPIIT Deep Tech Category (February 2026 Notification)
DPIIT's February 4, 2026 notification introduced a Deep Tech category for startups in AI, biotech, quantum computing, and space technology, offering:
- A 20-year DPIIT recognition window, against 10 years for general startups.
- A ₹300 crore turnover cap for DPIIT recognition purposes.
The ₹100 crore turnover cap for the 80-IAC / Section 140 tax deduction itself has not been amended by this notification. Verify current IMB conditions at the time of application before assuming the higher cap applies to the tax holiday.
ESOP Deferral Also Requires an IMB Certificate
The ESOP TDS deferral benefit — Section 392(3) read with Section 289(3) of ITA 2025 (Section 192(1C) of ITA 1961 for FY 2025-26) — is similarly available only to eligible startups: those with both DPIIT recognition and IMB approval. DPIIT recognition alone does not qualify an employee for deferral.
Practical Checklist for Founders
- Check IMB status. Log into startupindia.gov.in → Dashboard → Tax Benefits. If the 80-IAC application is pending or not filed, prioritise it.
- Time your three years strategically. Model profit projections and select the 3-year window that maximises the benefit — the years must be consecutive, but you choose when to begin.
- Claim it in the ITR. The deduction is not automatic; it must be explicitly claimed in the return.
- Provision for MAT. Minimum Alternate Tax applies even in holiday years — build it into your accounts.
- Match the section to the year. For the return being filed now (AY 2026-27 / FY 2025-26), cite Section 80-IAC. For the return for TY 2026-27 (to be filed in FY 2027-28), cite Section 140 of ITA 2025.
For Section 80-IAC / Section 140 eligibility assessment and IMB application support, see pvtltd.co/services/startup-tax-planning and pvtltd.co/services/dpiit-recognition.
I'm CA Harun Raaj. If this affects your company's compliance calendar, reach out.
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See Also
Frequently asked questions
My startup was DPIIT-recognised in 2022. Can I still claim Section 80-IAC (now Section 140)?
Yes, if you also hold an IMB certificate and your company or LLP was incorporated or registered on or after April 1, 2016. The 10-year window for choosing your 3 consecutive claim years runs from the date of incorporation, not from the date of DPIIT recognition.
Can an LLP claim the startup tax holiday under Section 80-IAC or Section 140?
Yes. Section 80-IAC of the Income-tax Act, 1961 (Section 140 of ITA 2025 from TY 2026-27) is available to both companies and LLPs that hold DPIIT recognition and an IMB certificate, and that meet the other eligibility conditions.
We have profits this year but no IMB certificate yet. Should we apply now?
Yes — apply through the Startup India portal without delay. The benefit can apply from the year in which conditions are met, but IMB processing takes time, so a delayed application risks losing part of your 3-year window inside the 10-year eligibility period.
We have already used 2 of our 3 tax holiday years. Can we pause and restart later?
No. Once you begin claiming the deduction, the 3 consecutive assessment years must run without interruption — you cannot skip a year and resume later.
Does the Section 80-IAC / Section 140 deduction apply automatically once we have DPIIT recognition?
No. DPIIT recognition is only the first of two separate eligibility tests; you also need an IMB certificate specifically for Section 80-IAC / Section 140. Even with both, the deduction is not automatic — it must be explicitly claimed in your income tax return.
Do we still have to pay MAT during the 3-year tax holiday?
Yes. Minimum Alternate Tax at 15% of book profit under Section 115JB (ITA 1961) or Section 163 (ITA 2025) continues to apply even in years the Section 80-IAC / Section 140 deduction is claimed, so it needs to be provisioned for in your accounts.
Which section should we cite when filing — 80-IAC or 140?
For the return being filed now, for AY 2026-27 (FY 2025-26), cite Section 80-IAC of the Income-tax Act, 1961. For the return for TY 2026-27 onwards, to be filed in FY 2027-28, cite Section 140 of the Income-tax Act, 2025.
Does the February 2026 Deep Tech category raise the ₹100 crore turnover cap for the tax deduction?
No. DPIIT's Deep Tech notification of February 4, 2026 extends the DPIIT recognition window to 20 years and raises the recognition turnover cap to ₹300 crore, but it has not amended the ₹100 crore turnover cap that applies to the Section 80-IAC / Section 140 tax deduction itself. Verify current IMB conditions at the time of application.
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