Moment guide · FY 2026-27

My startup is claiming the 80-IAC tax holiday

How do startups claim the 100% tax holiday under section 80-IAC?

A startup needs DPIIT recognition AND a separate 80-IAC tax holiday application to claim a 100% deduction on profits for 3 consecutive years out of the first 10, subject to turnover of ₹100 crore in any year. Eligible startups also let employees defer ESOP perquisite tax up to 48 months under section 192(1C), and angel tax under section 56(2)(viib) was removed by Finance Act 2024.

The #1 trap

Assuming DPIIT recognition alone gives the tax holiday — 80-IAC requires a separate application on the income-tax portal for the deduction, and the ₹100 crore turnover cap is tested every year of the claim. Also, the ESOP deferral is available only to employees of eligible startups, and it defers the perquisite, not the eventual capital gains.

Nikhil, founder of a DPIIT-recognised SaaS startup

Nikhil's SaaS startup was incorporated in 2021, recognised by DPIIT in 2022, and approved under section 80-IAC in 2023. Its profit for FY 2025-26 is ₹45,00,000, and its turnover is ₹6 crore, well within the ₹100 crore cap, so the startup claims a 100% deduction on the ₹45,00,000 of profit for that year, being the third consecutive year of its 80-IAC claim within the first 10 years from incorporation. A competing startup with turnover of ₹1.2 crore in a year cannot claim the deduction for that year, because the ₹100 crore ceiling is tested in every year of the claim. The startup issued ESOPs to three engineers in 2024, and under section 192(1C) the employees can defer the perquisite tax to the earliest of sale of the shares, exit from the company, or 48 months from the end of the assessment year in which the ESOP was exercised. The deferral covers only the salary perquisite; the capital gains on a later sale are taxed normally. When Nikhil raised a ₹2 crore round in 2025 from a recognised fund, no angel tax applied, because section 56(2)(viib) was removed by Finance Act 2024 for genuine startup funding. Nikhil files the 80-IAC computation with the return and keeps the DPIIT recognition letter, the 80-IAC approval order and the turnover working for scrutiny. A quick call with us dials in the final figure. Nikhil also verifies that the 80-IAC deduction is claimed on the eligible business profits only; income from other sources or capital gains does not get the holiday, and the books must separately identify the eligible profits. The three consecutive years out of the first ten are chosen by the taxpayer, so he plans to use the deduction in the highest-profit years and skip the loss years. If the turnover crosses ₹100 crore in any year of the claim, that year's deduction is lost, and the startup cannot simply restart the three-year count. The ESOP deferral under section 192(1C) requires the employee to be in an eligible startup, and the employer reports the deferred perquisite in the year of deferral, sale or exit, whichever comes first; the deferral runs to the earliest of those events, capped at 48 months from the end of the assessment year of exercise. A quick call with us dials in the final figure.