Section 80-IAC Tax Holiday: How Startups Actually Get the IMB Certificate
Section 80-IAC of the Income Tax Act, 1961 provides a 100% profit deduction for eligible startups for any three consecutive assessment years out of the first ten years from the year of incorporation. Getting to this deduction requires an Inter-Ministerial Board certificate — and most startups do not know what that process involves.
Harun Raaj
Chartered Accountant · Harun Raaj & Associates
Section 80-IAC of the Income Tax Act, 1961 provides a 100% profit deduction for eligible startups for any three consecutive assessment years out of the first ten years from the year of incorporation. Getting to this deduction requires an Inter-Ministerial Board (IMB) certificate — and most startups do not know what that process involves, how long it takes, or what the IMB is actually evaluating.
This article covers the eligibility conditions, the application process, and what the IMB assesses in practice.
What Section 80-IAC Provides
A startup holding an IMB certificate can claim a 100% deduction on profits from eligible business for any three consecutive assessment years chosen by the startup, out of the first ten years from the year of incorporation.
The deduction is from business income — it does not apply to capital gains, other income, or income from sources other than the eligible business. MAT (Minimum Alternate Tax) is not affected by the 80-IAC deduction until FY 2023-24; from FY 2024-25 onward, 80-IAC-certified startups are exempt from MAT on the relevant profits.
The window: ten years from incorporation. A startup incorporated in 2020 can claim the deduction in any three consecutive assessment years up to AY 2031-32 (FY 2030-31). The startup chooses which three years to apply the deduction — typically the three highest-profit years within the window.
Eligibility Conditions
Condition 1 — DPIIT recognition. The startup must hold a DPIIT recognition certificate. This is the threshold eligibility — without DPIIT recognition, the IMB application cannot proceed.
Condition 2 — Entity type. Only a company (including one person company) or a Limited Liability Partnership (LLP) is eligible. Sole proprietorships and partnership firms are excluded.
Condition 3 — Incorporation date. The startup must have been incorporated on or after April 1, 2016. Additionally, the startup must be incorporated before April 1 of the year the deduction is first claimed — for AY 2026-27 deductions, incorporation before April 1, 2026.
Condition 4 — Turnover. Annual turnover must not exceed ₹100 crore in any year during the claim period. For clarity: this is the startup's total turnover, not just profits. A startup that crosses ₹100 crore turnover in a year cannot claim 80-IAC for that year.
Condition 5 — Innovation / technology / IP. The startup must work towards innovation, development or improvement of products or processes or services, or must be a scalable business model with high potential for employment generation or wealth creation. The IMB evaluates this — it is not a self-declaration.
Condition 6 — Not formed by splitting or reconstruction. The startup must not have been formed by splitting up or reconstruction of an existing business.
The IMB Application Process
The Inter-Ministerial Board is constituted by the Department for Promotion of Industry and Internal Trade (DPIIT) and typically includes representatives from DPIIT, Ministry of Finance, and Ministry of Electronics and Information Technology (MeitY) for technology-focused startups.
Step 1 — File the application on the Startup India portal. The application is submitted at startupindia.gov.in under "80-IAC Tax Exemption." Required documents:
- DPIIT recognition certificate
- Incorporation certificate
- MOA/AOA or LLP Agreement
- Financial statements for all completed financial years
- Detailed business plan including: product/service description, technology innovation, market sizing, competitive landscape, scalability assessment, employment generated/projected
- Pitch deck (optional but strongly recommended)
- Any existing IP: patents filed/granted, trademarks, copyrights
- CA-certified net worth statement (if applicable)
Step 2 — Document review. DPIIT reviews the application for completeness. Incomplete applications are returned. The review typically takes 45–90 days.
Step 3 — IMB interaction. For applications that pass the document review, the IMB may call the founders for a video/in-person interaction. The IMB wants to understand:
- What is the core innovation? (Is this actually a new product/process/service, or an existing business with a website?)
- What is the scalability thesis? (Can this grow without proportional resource increases?)
- Employment: how many people have been hired, and what is the hiring plan?
- Revenue model and unit economics
Step 4 — Certificate issued or rejected. If the IMB is satisfied, the 80-IAC certificate is issued. Rejection reasons are communicated, and reapplication is permitted after addressing the concerns. The certificate, once issued, is valid indefinitely — there is no annual renewal.
What the IMB Actually Evaluates
Based on practitioners' experience with IMB applications, the IMB is specifically looking for:
- Genuine innovation: a startup that is simply selling existing products through a new channel typically does not qualify. The product, process, or service must be genuinely new or significantly improved.
- Technology leverage: non-tech startups can qualify, but technology-enabled businesses are evaluated more favourably. Manual service businesses without any technology component face higher scrutiny.
- Scalability: the IMB distinguishes between high-growth scalable models and lifestyle businesses. A local services company with 20 employees and no scalability roadmap is unlikely to qualify.
- Not a tax planning vehicle: the IMB is alert to startups incorporated specifically to access the deduction without genuine innovation — a three-year-old holding company that suddenly files for IMB qualification is scrutinised.
Interaction with ESOP Tax Deferral
As noted in the companion article on ESOP deferral, the IMB certificate is also the qualifying criterion for the ESOP perquisite tax deferral mechanism under the proviso to Section 17(2)(vi). A DPIIT-recognised startup without an IMB certificate cannot offer its employees the 48-month ESOP deferral.
This creates a dual incentive for startups to pursue IMB certification — the 80-IAC profit deduction for the entity, and the ESOP deferral benefit for employees.
I'm CA Harun Raaj, Visakhapatnam. If you are considering an 80-IAC application — whether for a portfolio startup or as a founder — the application quality and the IMB interaction preparation are where practitioners add the most value.
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See Also
Frequently Asked Questions
What is Section 80-IAC tax holiday benefit for startups and how much deduction can we claim?+
Section 80-IAC provides a 100% deduction on profits from eligible business for any three consecutive assessment years chosen by the startup, out of the first ten years from the year of incorporation. The deduction applies only to business income and does not apply to capital gains or other income sources. The startup chooses which three consecutive years within the ten-year window to claim this deduction, typically the three highest-profit years. From FY 2024-25 onward, 80-IAC-certified startups are also exempt from MAT on the relevant profits.
Do I need DPIIT recognition certificate to apply for Section 80-IAC imb certificate?+
Yes. Under Condition 1 of the eligibility criteria, the startup must hold a DPIIT recognition certificate. This is a threshold eligibility requirement — without DPIIT recognition, the IMB application cannot proceed.
Which business entities are eligible for Section 80-IAC deduction private limited company or partnership?+
Under Condition 2, only a company (including one person company) or a Limited Liability Partnership (LLP) is eligible. Sole proprietorships and partnership firms are excluded from section 80-IAC benefits.
What is the incorporation date requirement for startups claiming Section 80-IAC deduction?+
Under Condition 3, the startup must have been incorporated on or after April 1, 2016. Additionally, the startup must be incorporated before April 1 of the year the deduction is first claimed — for example, for AY 2026-27 deductions, incorporation must be before April 1, 2026.
What is the maximum annual turnover limit for Section 80-IAC eligibility?+
Under Condition 4, annual turnover must not exceed ₹100 crore in any year during the claim period. This refers to the startup's total turnover, not just profits. A startup that crosses ₹100 crore turnover in any year cannot claim 80-IAC benefits for that year.
How long is the ten year window to claim Section 80-IAC deduction after incorporation?+
Under the provisions of Section 80-IAC, a startup has a ten-year window from the year of incorporation to claim the deduction in any three consecutive assessment years. For example, a startup incorporated in 2020 can claim the deduction in any three consecutive assessment years up to AY 2031-32 (FY 2030-31).
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