Why Startups Can Pay 0% Tax
Understanding Section 80-IAC and how it fuels innovation.
The Indian government is aggressively pushing for entrepreneurship. One of the most powerful tools in this arsenal is Section 80-IAC of the Income Tax Act, which effectively allows eligible startups to pay zero corporate tax.
However, there is a massive confusion between "Registering a Startup" and "Tax Exemption". Let's clear it up.
The 3-Year Holiday Explained
An eligible startup can claim a 100% deduction on its profits for 3 consecutive years out of its first 10 years.
Strategic Block Selection
Startups usually make losses in the first few years. You shouldn't waste your holiday then. You can choose to claim exemption in Year 5, 6, and 7 when you hit peak profitability.
Tax Saved on ₹10 Cr Profit = ₹2.5 Cr (approx).
Who is Eligible? (The Checklist)
Merely having a Private Limited Company is not enough. You need to clear three hurdles:
Entity Type
Must be a Private Limited Co or LLP. (Partnerships/Proprietorships not eligible).
Age & Size
Incorporated after 1st April 2016. Turnover less than ₹100 Crores.
IMB Certification (The Hard Part)
You must hold a certificate from the Inter-Ministerial Board (IMB). This requires proving that your business involves "Innovation" or "Scalability".
Bonus: Angel Tax Exemption
Apart from income tax, recognised startups are also exempt from "Angel Tax" (Section 56(2)(viib)). This allows you to raise investment at high premiums without the taxman treating the investment as "Income".
How MGA Helps
90% of applications are rejected by the IMB because the "Innovation Note" is poorly drafted. We help founders articulate their tech and business model in the specific format required by the DPIIT board to maximize approval chances.