Short answer. Startup tax exemption in India comes down to two things, and one of them was just removed.
DPIIT recognition is the gateway. Once recognised, an eligible startup can claim Section 80-IAC — a 100% exemption on its profits for any three years out of its first ten. But recognition alone is not enough; the holiday needs a separate certificate from the Inter-Ministerial Board.
Angel tax is gone. From AY 2025–26 (1 April 2025), Section 56(2)(viib) no longer applies, so you can raise capital at any premium without that tax, from any investor, resident or foreign. Older years can still be questioned, though.
You still need a clean valuation (Rule 11UA) for FEMA pricing and ESOPs even now. We take startups through DPIIT recognition, the 80-IAC certificate, and the valuation work end to end.
What DPIIT recognition is, and what it actually gives you
DPIIT recognition is granted by the Department for Promotion of Industry and Internal Trade under the Startup India scheme. The application is online and free, but the entity has to meet the eligibility below. Recognition is the first step toward the startup tax exemption under Section 80-IAC, and once recognised these are the benefits you can use:
- Eligibility to apply for the Section 80-IAC income-tax holiday (with a further certificate, explained below).
- Self-certification of compliance under several labour and environment laws.
- Faster patent and trademark processing, with fee rebates.
- Easier public procurement (relaxation from prior-turnover and experience conditions).
- Simpler winding-up and access to government startup funds and schemes.
Section 80-IAC: the startup tax exemption that matters
This is the startup tax exemption that actually moves the needle. Section 80-IAC gives an eligible startup a 100% deduction of its profits for three consecutive assessment years, and you may choose those three years out of the first ten years since incorporation.
The choice matters. Most startups lose money in the early years, so you pick the three profitable years to get the most out of the holiday rather than wasting it on loss years.
| Condition | Requirement |
|---|---|
| Entity type | Private Limited Company or LLP |
| Date of incorporation | On or after 1 April 2016 and before 31 March 2030 (window extended by the Finance Act 2025) |
| Turnover | Not more than ₹100 crore in the relevant financial year |
| Recognition | Valid DPIIT recognition plus a Certificate of Eligibility from the Inter-Ministerial Board (IMB) |
| Nature of business | Innovation or improvement of products, processes or services, with a scalable model |
| Origin | Not formed by splitting up or reconstructing an existing business |
The mistake that costs the holiday
DPIIT recognition by itself does not give you the tax holiday. The 80-IAC deduction needs a separate IMB Certificate of Eligibility, and the board is selective. Most applications fail because the innovation and scalability case is weak or generic. Building that case properly is the whole job.
Angel tax: abolished from AY 2025–26
For years, angel tax under Section 56(2)(viib) was the biggest fundraising headache for startups. If an unlisted company issued shares above their fair market value, the excess premium was taxed as the company’s own income, often on the back of a future-looking valuation the department later disputed.
The Finance Act 2024 abolished it. With effect from AY 2025–26 (1 April 2025), Section 56(2)(viib) no longer applies, and this covers every investor — resident or non-resident. For new fund raises from that date you can issue shares at any premium without angel tax, and without the angel-tax-specific filings and merchant-banker valuation that used to go with it.
The part that still bites
The abolition is not retrospective. The department can still raise angel-tax questions for earlier years (for example FY 2022–23 and FY 2023–24) within the assessment time limits. If you raised funds at a premium in those years and a notice lands, you still have to defend the valuation. We draft and represent those replies.
Valuation under Rule 11UA still matters
Angel tax is gone, but valuation has not stopped mattering. You still need a defensible valuation for:
- FEMA pricing on foreign investment — shares issued to a non-resident must be priced at or above fair value by an accepted method.
- ESOP perquisite valuation under Section 17(2), when employees exercise their options.
- Share transfers and buy-backs, where fair value drives the tax.
The methods (DCF or NAV under Rule 11UA, certified by a Chartered Accountant or merchant banker as required) are the same tools. Keep your cap table and valuation clean from the first round and these stop being a problem. We provide startup valuation services under Rule 11UA when you need a defensible number.
Are you eligible for DPIIT recognition?
- You are a Private Limited Company, LLP, or registered partnership firm.
- Less than 10 years have passed since incorporation.
- Turnover has stayed under ₹100 crore in every year since incorporation.
- You are working on innovation or improvement, or a scalable model with potential to create employment or wealth.
- The entity was not formed by splitting up or reconstructing an existing business.
How we handle it
- DPIIT recognition application and documentation.
- The 80-IAC Certificate of Eligibility (IMB) application, with the innovation and scalability write-up that the board actually wants to see.
- Valuation under Rule 11UA for FEMA rounds and ESOPs.
- Picking the right three years for the holiday and filing to claim the deduction.
- Defending legacy angel-tax notices for earlier years if they come.
You get a written scope and fee before any work starts.
The mistakes that cost startups the most
Most founders lose the startup tax exemption not because they are ineligible, but because of avoidable slips:
- Treating DPIIT recognition as the tax holiday. It is only the first step; the IMB certificate is separate.
- Claiming 80-IAC in loss-making years and wasting the three-year window.
- Ignoring FEMA valuation on a foreign funding round.
- Forgetting ESOP perquisite valuation at the time of exercise.
- Assuming the abolished angel tax also clears old years. It does not.
Building a startup? Set the tax benefits up properly.
The startup tax exemption is worth real money, but only when it is claimed correctly. We take startups through DPIIT recognition, the Section 80-IAC certificate, valuation for FEMA and ESOPs, and the legacy angel-tax replies if they arise. See our DPIIT & Section 80-IAC service, or talk to CA Vijay directly. Written scope and fee before any work begins.
Message CA Vijay on WhatsApp Contact the officeFrequently asked questions
Is angel tax still applicable in 2026?
No. Angel tax under Section 56(2)(viib) was abolished by the Finance Act 2024 with effect from AY 2025–26 (1 April 2025), for all investors, resident and non-resident. You can raise at any premium without it. The department can still question premiums from earlier years within the assessment time limits.
What does DPIIT recognition give a startup?
It is the gateway to the Section 80-IAC tax holiday (with a further IMB certificate), self-certification under several labour and environment laws, faster IP processing with fee rebates, easier public procurement, and access to government startup schemes.
How much tax does Section 80-IAC exempt?
It allows a 100% deduction of profits for three consecutive assessment years, which you can choose out of the first ten years since incorporation.
Is DPIIT recognition enough for the 80-IAC tax holiday?
No. The 80-IAC deduction needs a separate Certificate of Eligibility from the Inter-Ministerial Board, on top of DPIIT recognition. The board is selective, so the application has to make a proper innovation and scalability case.
Which startups are eligible for 80-IAC?
A Private Limited Company or LLP, incorporated on or after 1 April 2016 and before 31 March 2030, with turnover up to ₹100 crore in the relevant year, holding DPIIT recognition and the IMB certificate, engaged in innovation, and not formed by splitting up or reconstruction.
Do I still need a valuation now that angel tax is gone?
Yes. You still need a Rule 11UA valuation for FEMA pricing on foreign investment and for ESOP perquisite valuation under Section 17(2), among others.
Can I still get an angel-tax notice for past years?
Yes. The abolition is not retrospective, so premiums raised in years before AY 2025–26 can still be assessed within the time limits. If a notice comes, the valuation has to be defended.
Related guides and services
- DPIIT & Section 80-IAC startup recognition — we prepare the recognition and the IMB Certificate of Eligibility application.
- Startup valuation services — Rule 11UA valuation for FEMA rounds and ESOPs.
- NRI selling property in India: TDS under Section 195 — for founders and families with cross-border property.
This guide is general information, not tax advice for your specific case. Positions follow the Finance Act 2024 and the Finance Act 2025 and may change with later amendments or notifications. Confirm the current rules for your startup before acting. Vijay R Singh & Co., Chartered Accountants.
