Section 80-IAC for startups, How to Avail the tax exemption.

To encourage the development of startups in India and provide the newly established businesses with a competitive platform to survive in a cutthroat business environment, the Indian government added Section 80-IAC to the Income Tax Act. A startup that meets the requirements of Section 80-IAC may deduct 100% of its income and gains. With the intention of supporting business owners who create jobs, this section was first included in the Finance Act of 2016 and later changed in the Finance Bill of 2018.

An application for tax exemption under Section 80 IAC of the Income Tax Act may be made by a startup after receiving recognition. In its first ten years since incorporation, the startup can take advantage of a tax holiday for three consecutive fiscal years after receiving approval for a tax exemption.

Income Tax Section 80-IAC Deduction Conditions

After receiving recognition, a startup may apply for tax exemption under section 80IAC of the Income Tax Act. Following tax exemption approval, a startup may take advantage of a tax vacation for three consecutive fiscal years during the first ten years following incorporation.

• Whether the business is incorporated through a corporation or a Limited Liability Partnership (LLP).
• By logging in to the Startup India Portal with your login credentials, you can apply for an exemption under Section 80IAC. If the company’s total annual revenue in any prior year beginning on or after April 1, 2016, and ending on March 31, 2021, does not exceed INR 20 crores.

Taxpayers should be aware that, beginning with the date of incorporation, the criterion of a turnover of not more than INR 25 crores will apply to the previous seven years. Furthermore, the company’s turnover for the year in which it claims the 100% deduction cannot exceed INR 25 crores.

Prerequisites for a New Plant and Machinery Business

It is not permissible to transfer to a new firm any equipment or plant that has previously been used for any purpose. However, if all of the following criteria are met, any machinery used by a person outside of India will not be considered machinery or plant previously used for any purpose:If the equipment or facility was never used in India before the assessment installation.
If the equipment or plant was brought to India.

No deduction for depreciation with regard to such machinery or plant has been authorised or is permitted under the rules of the Income Tax Act of 1961 in determining a person’s total income for any period preceding the date the assessee installed the machinery or plant.

Furthermore, in the case of a startup, any previously used equipment, plant, or component is transferred to the new business, along with the total value of the equipment, plant, or component. The total cost of the firm’s equipment or plant should not exceed 20% of the total cost of plant and machinery.

Procedure for applying for tax exemption under Section 80-IAC

The following information is required to make an application for exemption under Section 80IAC:
1. Memorandum of Association (for a private limited company) or LLP Deed (for an LLP)
2. Board decision (if any)
3. The startup’s annual accounts and income tax returns for the previous three fiscal years. (The balance sheet and profit and loss statement must be certified by the CA.)
4. Income Tax Returns (ITR) are not required if your startup was formed on or after April 1, 2018. ITR is required for startups that were previously formed.
5. Video Link for the Startup.

Conclusion

Section 80IAC of the Income Tax Act will help startups survive in a fiercely competitive market. Furthermore, this will help the country produce more jobs for young people and support the government’s goal of job creation rather than job seekers.