KMG CO LLP experts are available to assist with obtaining Startup India registration and applying for the Section 80 IAC tax exemption. Our team provides comprehensive support, ensuring a smooth process for startups looking to secure these benefits.

What is Section 80-IAC?

Section 80-IAC of the Income Tax Act, 1961, was introduced on April 1, 2017. This provision allows eligible startups to claim a 100% tax deduction on profits for three consecutive years.

Section 80-IAC offers significant tax benefits to startups or LLPs involved in innovative and developmental activities, as well as companies providing improved products and services. Designed to support startups with scalable business models, it encourages employment generation and wealth creation by allowing them to deduct 100% of their profits and gains.

Purpose of Section 80-IAC

Section 80-IAC serves multiple purposes, all aimed at supporting the growth of startups in India:

1. Supporting Startup Growth
   The primary goal is to offer substantial tax benefits during the startup’s initial phases, reducing financial stress and enabling them to focus on growth.

2. Encouraging Tax Compliance
   It motivates young entrepreneurs to follow tax-compliant practices by offering incentives, thus minimizing tax evasion.

3. Promoting Innovation and R&D
   Section 80-IAC encourages startups to engage in research and development, leading to new and improved products, services, and processes that bolster India’s technological landscape.

4. Stimulating Economic Growth
   The provision promotes investment in innovative, scalable business ventures, thus contributing to economic growth by providing tax relief to domestic companies that invest in startups.

Overall, Section 80-IAC seeks to create a favorable environment for startups, which play a crucial role in India’s economy and innovation sector.

Eligibility Criteria for Section 80IAC Tax Exemption

To qualify for the tax exemption under Section 80 IAC, startups must meet the following criteria:

• Entity Type: Must be a Company, LLP, or registered partnership firm.

• DPIIT Recognition: Must obtain recognition from the Department of Promotion of Industry and Internal Trade (DPIIT).

• Incorporation Period: Must be incorporated between April 1, 2016, and March 31, 2025.

• Age Limit: The deduction can be claimed within 10 years from the startup’s incorporation.

• Originality: Must not be formed by splitting or reconstructing an existing business.

• Plant and Machinery: Must use new machinery, not transferred from other businesses.

• Turnover Limit: Turnover must not exceed Rs. 100 crores in the relevant financial year.

• Business Objective: Must focus on employment generation, wealth creation, and innovation.

Meeting these criteria is crucial for startups before filing for the Section 80 IAC tax exemption.

Benefits of Section 80-IAC

The key benefits of Section 80-IAC include:

1. 100% Deduction on Profits: Startups can deduct 100% of their profits for three consecutive years.

2. No Advance Tax: Since the tax liability becomes nil, eligible startups are exempt from advance tax.

3. Reduction in Taxable Income: This deduction reduces the startup’s taxable income, easing financial pressures.

4. Simple Application Process: Startups can easily apply for the tax exemption through an online process, making it more accessible.

Documents Required for Section 80-IAC Application

Startups must submit the following documents for the Section 80-IAC tax exemption:

1. Memorandum of Association (MoA) or LLP Deed  

   - Private Limited Companies: Upload a certified copy of the Memorandum of Association. If you're using a SPICe MoA, print and scan it or convert it into a printable PDF before uploading.

   - Limited Liability Partnerships (LLPs): Upload a certified copy of the LLP Deed.

2. Board Resolution

   - If applicable, upload any Board Resolutions related to the tax exemption application.

3. Annual Financial Statements 

   - Certified Balance Sheet  

   - Trading and Profit & Loss Account  

   - Provide these documents for the past three financial years or for all years since incorporation. Ensure that the Balance Sheet and Profit & Loss Statement are certified by a Chartered Accountant.

4. Income Tax Returns

   - Upload the Income Tax Returns for the last three years or since incorporation. These documents must be complete and accurate to reflect the startup’s financial health.

5. Video Presentation

   - Follow the Form 80 IAC Video Guidelines to create a presentation that clearly explains your startup’s mission, products, and growth potential.

6. Pitch Deck

   - Prepare a detailed pitch deck outlining your business model, market analysis, competitive edge, and financial projections. Refer to the Form 80 IAC Pitch Deck Guidelines for specific instructions on how to structure and present this information.

7. Additional Clarifications  

   - If the reviewing authority requests more information or clarifications, be ready to provide detailed responses and any additional documents needed.

8. Section 56 Exemption Certificate (if applicable) 

   - If your startup has been granted an exemption under Section 56 for angel tax, include the details and a copy of the exemption certificate.

How to Apply for Exemption under Section 80-IAC

Securing a tax exemption under Section 80-IAC offers valuable financial benefits to eligible startups. The application process is conducted through the Startup India portal and involves the following steps:

Step 1: DPIIT Recognition Registration

1. Access the Startup India Portal:  

   - Visit the Startup India portal. If you don’t have an account, register with your business email and set a password.

2. Apply for DPIIT Recognition:  

   - Once logged in, navigate to the DPIIT recognition section. Click on ‘Apply for Recognition’ and begin the application process. You’ll be asked to provide details about your startup and upload necessary incorporation documents.

Step 2: Filing for Tax Exemption

1. Initiate Tax Exemption Claim:  

   - After receiving DPIIT recognition, you can apply for the tax exemption. Locate the ‘Claim Tax Exemption’ tab on the portal.

2. Fill Out the Tax Exemption Form:  

   - Provide the following accurate details about your startup:

     - Startup Name: Your legally registered name.

     - Date of Incorporation: The official registration date of your company.

     - Business Address and Location: The physical address of your business.

     - Incorporation/Registration Number: Your startup’s registration number.

     - Nature of Business: Indicate whether your business is an LLP or a PLC.

     - DIPP Number: Your unique DPIIT identification number.

     - Contact Details: Include a registered email ID, phone number, and PAN of the entity.

Step 3: Documentation Submission

1. Document Preparation:  

   - Convert all required documents into PDF format and ensure they are clearly legible.

2. Required Documents:

   - LLP: Upload the Limited Liability Partnership Deed.

   - PLC: Upload the Memorandum of Association.

   - Board Resolution: Required for specific board approvals related to the exemption.

   - Financial Documents: Certified balance sheets and Profit & Loss statements for the last three financial years or from the startup’s inception.

   - Income Tax Returns: Copies of tax returns for the last three years or since incorporation.

   - Video Pitch: A brief video showcasing your startup’s mission, product, and team.

   - Pitch Deck: A comprehensive pitch deck outlining your business model, market analysis, competitive advantage, and financial projections.

   - Additional Documentation: If applicable, include your angel tax exemption certificate.

Step 4: Final Steps – Submission and Approval

1. Review and Submit:  

   - Carefully check all the details and documents for accuracy before submitting the application via the portal.

2. Monitoring and Communication:  

   - After submission, you can monitor the application status through the Startup India portal. The DPIIT review process typically takes 3 to 9 months. Be ready to respond to any queries or requests for additional information during this time to ensure smooth processing.

By following these steps, your startup can efficiently apply for the Section 80-IAC tax exemption, enhancing your financial prospects.

Revocation of Exemption under Section 80-IAC

The DPIIT notification outlines specific provisions under Clause 8 for the revocation of tax exemptions granted to startups under Section 80-IAC of the Income Tax Act, 1961. Below are the conditions for revocation:

1. Incorrect Details or Suppression of Facts:

• If it is discovered that a startup obtained the exemption by providing incorrect information or by withholding material facts relevant to Section 80-IAC, the tax exemption may be revoked.

2. Legal Consequences:

• Upon revocation, the entity will lose all previously granted benefits under this notification.

• The startup will also be subject to legal prosecution under the Income Tax Act, 1961.

• This may include penalties and other legal actions as deemed appropriate by authorities.

3. Importance of Accurate Reporting:

• This clause emphasizes the need for transparency and accuracy in the application process.

• Startups must ensure that all submitted information is complete and truthful to avoid revocation of benefits and legal repercussions.

Ensuring correct and honest reporting during the application process for Section 80-IAC tax exemption is crucial to maintain eligibility and avoid any potential legal issues.

Conclusion

Section 80-IAC offers significant tax benefits for eligible startups, supporting their growth, innovation, and economic contribution. KMG CO LLP provides comprehensive assistance to startups, ensuring a smooth and efficient process for securing these benefits.