Deduction to an Eligible Start-up [Section 80-IAC]
• Eligible startups (companies or LLPs) can claim deduction for profits and gains from eligible business activities.
• Deduction is allowed up to 100% of profits and gains for 3 consecutive assessment years out of 10 assessment years beginning from the year of incorporation. Deduction is computed assuming the eligible business is the sole source of income during the relevant year.
• Meaning of Eligible Startup – Section 80-IAC defines an ‘eligible start-up’ as a Company or a Limited Liability Partnership which fulfils the following conditions:
Incorporated on or after 1st April 2016 but before 1st April 2030.
Turnover does not exceed Rs. 100 crore in the previous year for which deduction is claimed.
Holds a certificate of eligible business from the Inter-Ministerial Board of Certification notified by the Central Government.
Engaged in the business of innovation, development or improvement of products/processes/services or scalable business models with high potential for employment generation or wealth creation.
Registered with the Department for Promotion of Industry and Internal Trade (DPIIT). CBDT had clarified that DPIIT recognition doesn’t automatically qualify a start-up for section 80-IAC deduction.
• Start-up must not be formed by splitting up or reconstructing an existing business, except for re-establishment/revival under Section 33B.
• Start-up must not be formed by transfer of previously used plant/machinery, except if used outside India before installation and imported (with certain conditions). The condition is deemed fulfilled if the second-hand plant/machinery value does not exceed 20% of the total value.
• DPIIT recognized start-up must apply in Form 1 to the Inter-Ministerial Board of Certification with:
Annual accounts for the last 3 financial years;
Copy of income-tax returns for the last 3 financial years;
Copy of Memorandum of Association, LLP deed, board resolution, etc.
The board may request additional information and reject the application with reasons if the criteria are not met.
• DPIIT may revoke the certificate if issued on false information. Revoked certificate deemed never to have been issued/granted.
• Deduction claim under this section requires books of account audited by a Chartered Accountant. Audit report to be furnished electronically in Form 10CCB one month before the due date of furnishing the return of income under section 139(1).
• Profit must not exceed reasonably expected; AO may recompute income.
• Transfer pricing norms apply to specified domestic transactions.
• Return of income must be filed within the due date under Section 139(1) to claim a deduction.
• Deduction cannot be claimed under any other provision of ‘Chapter VI-A under the heading C’ (Section 80HH to 80RRB). Further, the deduction amount shall not exceed the profits and gains of the eligible business.