Startup Tax Benefits: Section 80-IAC and Angel Tax

Section 80-IAC lets an eligible startup claim a 100% deduction on profits for three consecutive years out of its first ten. Angel tax, which taxed share premium above fair value, no longer applies from assessment year 2025-26. Both matter to founders raising money or planning profits.

Why it matters

A young company rarely pays tax in year one, but it will if it turns profitable, and fundraising can trigger tax questions too. Getting Startup India registration sorted early is the first step, since the benefits depend on DPIIT recognition.

Who can claim 80-IAC

• Only private limited companies and LLPs. Partnerships and proprietorships do not qualify.
• Incorporated between 1 April 2016 and 31 March 2030.
• Turnover has not crossed Rs 100 crore in any year since incorporation.
• A certificate from the DPIIT Inter-Ministerial Board.
• Accounts audited by a chartered accountant.

The deduction is not automatic. You must apply for the certificate and then claim it in your return. Our Section 80-IAC tax exemption service covers both steps.

What happened to angel tax

Section 56(2)(viib) taxed premium received over fair market value from resident investors. The Income Tax Department’s startup page states the provision is not applicable from assessment year 2025-26. Older years can still come up in notices, so keep valuation papers safe.

Other support

Recognised startups can also look at the Startup India Seed Fund for early capital, which is separate from any tax benefit.

Common mistakes

• Assuming DPIIT recognition alone gives the tax holiday. The 80-IAC certificate is separate.
• Setting up as a partnership and discovering it cannot claim.
• Picking the wrong three years. The three years are your choice within the ten-year window, so plan around when profits begin.
• Throwing away old valuation reports for past rounds.

Related guides: DPIIT recognition, MSME classification, MCA and ROC

FAQs

Is angel tax still applicable?

Section 56(2)(viib) is not applicable from assessment year 2025-26, according to the Income Tax Department.

Can an LLP claim Section 80-IAC?

Yes. Private limited companies and LLPs are eligible if they meet the other conditions.

How long does the 80-IAC benefit last?

It covers 100% of profits for three consecutive assessment years chosen from the first ten years.

Want to check if your startup qualifies? Talk to a Taxhint expert before you file.