A S BANKA ADVISORS

If your startup is finally turning profitable, Section 80-IAC of the Income-tax Act, 1961 is the single most valuable relief on the table: a 100% deduction of business profits for three years. The Finance Act, 2025 just extended the window for new entrants, and the Income-tax Act, 2025 is about to renumber the provision. Here is what it actually means for a founder deciding when, and whether, to claim it.

The holiday in one line

An eligible start-up can deduct 100% of the profits and gains of its eligible business for any three consecutive assessment years, chosen out of the first ten years from incorporation. The flexibility is the point. Most start-ups lose money early, so you pick the three consecutive years where profits, and therefore the tax saved, are highest. For those three years, regular income tax on eligible-business profit can fall to nil.

The 2030 extension

The earlier eligibility cut-off was 31 March 2025. The Finance Act, 2025 pushed it out to 31 March 2030 (effective 1 April 2025). The incorporation window is now 1 April 2016 to 31 March 2030. This is not a small change: it gives another five cohorts of founders runway to qualify, and the Inter-Ministerial Board has been clearing batches steadily, including a recent set of 187 start-ups.

Do you actually qualify?

All of these must be true:

• Entity: A private limited company or LLP. A firm or proprietorship does not qualify.
• Incorporation: On or after 1 April 2016 and before 1 April 2030.
• Turnover: Not more than Rs 100 crore in the relevant previous year.
• Recognition: DPIIT-recognised, and holding an Inter-Ministerial Board (IMB) eligibility certificate. The IMB certificate is mandatory; DPIIT recognition alone is not enough.
• Origin: Not formed by splitting up or reconstruction of an existing business.

The trap that quietly costs founders the most

This is where I see value lost. Two interactions need to be modelled before you elect a tax regime:

1. The Section 115BAA conflict. The concessional 22% regime bars most Chapter VI-A deductions, and that includes Section 80-IAC. If you want the holiday, you generally have to stay in the normal regime for those years rather than opting into 115BAA. Founders who default into 115BAA for the lower headline rate can unknowingly forfeit a far larger benefit.

2. Minimum Alternate Tax (Section 115JB). In the normal regime, MAT can still apply on book profits even when 80-IAC reduces your regular tax to nil. The MAT paid is not lost; it becomes MAT credit that carries forward and sets off against regular tax in later years. So the real comparison is: normal regime plus 80-IAC plus MAT, versus 115BAA without 80-IAC, run across the relevant years.

How to claim it, in order

1. Secure DPIIT recognition for the start-up.
2. Apply for and obtain the IMB eligibility certificate under Section 80-IAC. Complete applications are now reviewed within 120 days.
3. Choose the three consecutive profitable years inside the ten-year window.
4. Get the eligible-business accounts audited and file the audit report (Form 10CCB) by the due date.
5. Claim the deduction in the ITR for each elected year, keeping turnover within Rs 100 crore.

The 1961 to 2025 Act transition

Cite the Act that governs the year. For FY 2025-26 (AY 2026-27), the deduction is claimed under Section 80-IAC of the Income-tax Act, 1961. From FY 2026-27 onwards, the Income-tax Act, 2025 (in force from 1 April 2026) carries the start-up deduction into Section 140. Section 536 of the 2025 Act preserves benefits already accrued, so a three-year holiday that is mid-stream when the new Act takes over is not disturbed.

The bottom line for founders

The 80-IAC holiday is high value and easy to forfeit: a stray 115BAA election, a missing IMB certificate, or the wrong choice of three years can each cost you the benefit. If you are turning profitable, model the regime choice before you file rather than after.

Download the full carousel PDF for the complete eligibility map, the three-year-window example, and the 115BAA versus 80-IAC decision framework.

Need help navigating this? Schedule a Strategy Session: https://calendly.com/asbanka-info/30min. CA Adityavikram Banka, Founder, A S Banka Advisors Private Limited.