Read on to know all about Section 80IAC Act, the benefits and eligibility criteria to claim tax benefits under this section in detail.
What is Section 80 IAC Act?
The Section 80-IAC of the Income-tax Act,1961, was introduced on April 1, 2017 in India. According to this section, any startup making a profit is entitled to 100% tax deductions for any three years in a row.
What are the benefits of 80IAC?
There are many benefits to the tax exemption under Section 80IAC that go well beyond simply reducing taxes. Let’s look at a few of the main benefits:
Decreased Tax Burden:
This exemption frees up a sizable sum of money that entrepreneurs can wisely reinvest in research and development (R&D). This encourages creativity and makes it possible for entrepreneurs to create innovative goods and services that cater to consumer demands. Funds might also be allocated to marketing campaigns aimed at increasing brand recognition and consumer acquisition. Additionally, the exemption can be used to hire additional qualified individuals to increase the team size, enhancing the startup’s skills and accelerating its rate of growth.
Attracts Investment:
Investors find startups easier to invest in when they can take advantage of the tax benefits provided by Section 80-IAC. A tax-exempt company may seem like a less risky investment with a higher chance of success to potential investors.
Better Cash Flow:
Startups can help maintain a strong cash flow, which is essential for managing the frequently unpredictable business environment, by reducing their tax payments. Startups are free to make strategic choices without being held back by impending tax payments because of this financial stability. A robust cash flow gives startups the flexibility they need to take advantage of new possibilities and adjust to unforeseen problems in a dynamic market environment.
Enhanced Market Competitiveness:
Startups are able to offer competitive pricing or make investments in cutting-edge technology thanks to the tax incentive provided by Section 80IAC. Their competitive advantage in the market enables them to develop a presence among their competitors. Because of the tax exemption, businesses can spend their increased profitability in R&D, starting with a beneficial cycle that leads to both market dominance and advancements.
Eligibility Criteria:
Not every startup business is eligible for this tax benefit. For a startup to qualify for the exemption under Section 80IAC, it needs to:
- Must be recognized by DPIIT: Hold an accreditation from the Department of Industry and Internal Trade Promotion (DPIIT). The DPIIT has particular requirements to qualify a startup, which include many factors like innovation, scalability, and the manufacturing or development of new goods or services. This distinction validates the startup’s creative nature and growth potential.
- Nature of Business: The core business activity of the startup should be focused on development, innovation, or a scalable business model with high potential for revenue or employment generation.
- LLP Incorporation: To qualify for tax benefit under the Section 80IAC, the startup must be incorporated as a Limited Liability Partnership (LLP) or as a Private Limited Company. These legal frameworks offer a means of drawing in capital, building a solid brand, and guaranteeing openness in financial dealings.
- Date of Merger: have been merged subsequent to April 1, 2016. This clause guarantees that the provision supports the development of an innovative culture in the contemporary corporate environment.
Making Tax Benefit Claims under Section 80 IAC: A Simple Process
Once your organization is eligible for tax exemptions under 80 IAC of the Income Tax Act, you can easily claim and apply for a 100% tax deduction by following these steps. Startups that have received DPIIT recognition may apply for the exemption by filing a specific form to the Income Tax department. To ensure a seamless application procedure, optimise benefits, and adhere to rules, it is advised to consult a professional tax specialist.
Step 1: Log in to Startup India portal:
After ensuring that you have all the required documents, the first step to claim a tax deduction under Section 80 IAC is to log in to the Startup India official website and create an account. Subsequently, you may be required to apply for a recognition certificate from DPIIT. You can accomplish this by going through the startup India registration process steps.
Step 2: Fill in the Details in the Startup India portal:
After logging in to the portal, select the ‘claim tax exemption’ option and fill in the details in the form.
- Name of the startup
- Date of incorporation
- Address and location of the startup
- DIPP certificate number
- PAN number of your startup
- Startup’s registration number
- Nature of your startup (specify whether PLC (Private Limited Company) or LLP (Limited Liability Partnership))
- Contact details like mobile number and/or E-mail ID
Step 3: Submit Required Documents in PDF Format
The final step in claiming tax deduction under Section 80AIC is submitting the below documents in PDF format.
- Profit and Loss statements of the startup
- Financial Statements for the last 3 years or for all the years since the date of establishment of startup
- Limited Liability Partnership Deed (for LLP)
- Income Tax Returns (ITR) for the last 3 years or from the date of establishment of startup
- Memorandum of Association (for PLC)
- Board Resolution (optional)
- Section 56 Exemption Certificate
- CA certified balance sheet
- Pitch Deck in PDF format
- Startup video pitch link
Step 4: Approval Time
Once all the required details are filled out accurately, you can submit your application through the Startup India Portal. Your application will be thoroughly reviewed by the Startup India portal department within a few days. If all the information and documents submitted are found to be correct, your application will be approved by the department.
Step 5: Receive DIPP certificate
Once your application is approved by the Startup India department, the DPIIT will provide your startup with an 80IAC tax exemption certificate. Through this certificate, you can claim 100% tax deductions for your startup.
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Final Thoughts
For qualifying startups, the Income Tax Act of 1961’s Section 80-IAC provides a tax benefit, while encouraging companies to develop and innovate new goods and services. It helps qualified startups by giving them the necessary financial independence through tax deductions for expansion, stability, and innovation in the future. We recommend you to check out our website to know more about our professional tax related services
Frequently Asked Questions (FAQs)
1. What is the time period to claim deduction under Section 80IAC?
Section 80IAC allows eligible business or startup owners to claim a 100% deduction for 3 financial years within 10 years of the startup’s establishment.
2. What is DIPP certificate?
DIPP Certificate is the certificate any business receives from DIPPT after being recognized or identified as a startup by the DPIIT. This certificate helps your startup business avail all benefits under the Startup India Scheme.
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