The Startup Tax Holiday (80-IAC): IMB Certification, Eligibility and How to Claim It

Many founders assume DPIIT recognition comes with a tax exemption. It doesn't. The startup tax holiday, long known as Section 80-IAC, needs a separate certificate from the Inter-Ministerial Board (IMB), which is much harder to get than recognition. For the startups that qualify, it can wipe out income tax on three years of profits. This guide explains how it works.

What the Tax Holiday Gives

An eligible startup can claim a 100% deduction of its profits for any 3 consecutive years out of its first 10 years from incorporation. The startup chooses which 3 years, so it can save the deduction for years when it's actually profitable.

The same IMB certification also lets the startup's employees defer the tax on their ESOPs. Instead of paying tax when they exercise options, they pay it when they sell the shares, leave the company, or after 48 months, whichever comes first.

From 1 April 2026, the Income-tax Act, 2025 replaces the 1961 Act. The startup deduction and the ESOP deferral carry over under new section numbers, though the familiar "80-IAC" label is still widely used.

Who Can Get It

• The startup must already be recognised by DPIIT.
• It must be a company or an LLP. Partnership firms can be recognised, but can't claim the tax holiday.
• It must have been incorporated on or after 1 April 2016 and before 1 April 2030.
• Its turnover must not exceed ₹100 crore in the year the deduction is claimed.
• It must satisfy the IMB that it's genuinely innovative, which is a noticeably higher bar than for recognition.

Applying to the IMB

The application is made online, after recognition, and usually needs:

• The DPIIT recognition details.
• Financial statements and income tax returns.
• A detailed description of the innovation, the technology or business model, and how it creates value.
• Evidence such as patents, product details, revenue traction, funding and awards.

The IMB reviews applications and may ask for a presentation or more information. Many applications are rejected or sent back, usually because the innovation case isn't strong or specific enough. A startup can apply again with a stronger case.

Claiming the Deduction

Once certified, the startup:

1. Chooses the 3 consecutive years in which to claim the deduction, within its first 10 years.
2. Claims the deduction in its income tax return for those years.
3. Gets the required audit report from a chartered accountant, and files it with the return.

There are a few important trade-offs:

• The tax holiday can't be combined with the concessional 22% company tax regime. A company has to choose between them, so compare the two over several years.
• Minimum alternate tax may still apply to companies under the normal regime, depending on the law for the year.
• The deduction only covers profits from the eligible business.

Is It Worth It?

For a startup that expects meaningful profits within its first 10 years, the tax holiday can be valuable, and the ESOP deferral helps attract talent even before the company is profitable. For a startup that won't be profitable for many years, the immediate benefit is mainly the ESOP deferral. Either way, recognition is worth having for its other benefits, and the IMB application is worth making once you can show a strong innovation case.

Common Mistakes

• Assuming DPIIT recognition gives a tax exemption by itself.
• Applying to the IMB with the same short description used for recognition.
• Partnership firms expecting the tax holiday.
• Choosing the 22% regime without comparing it with the tax holiday.
• Claiming the deduction without the required audit report.

Getting Help

Think Filing prepares IMB applications with a detailed innovation case, plans which years to claim the deduction in, and handles the audit report and tax returns.

Sources

• Income-tax Act, 1961, section 80-IAC, and the Income-tax Act, 2025, from 1 April 2026.
• DPIIT notification on the definition of a startup (G.S.R. 127(E), 2019), as amended.