Union Budget 2016 : 100% tax holiday for 3 years to “Eligible Start ups”

Union Budget 2016 : 100% tax holiday for 3 years to “Eligible Start ups”

Section 80IAC is proposed to be inserted in Income Tax Act, which governs the deduction of 100% profits from eligible start ups for 3 consecutive years.


Following are the proposed provisions of the same.


What is an “Eligible Business”?


Eligible business means a business which involves innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property


What is an “Eligible Start Up”?


Eligible startup means a company engaged in eligible business which fulfils the following conditions namely


  • It is incorporated on or after 01-04-2016 but before 01-04-2019.
  • Total turnover of its business does not exceed Rs. 25 crores in any of the previous years beginning on or after 01-04-2016 to 31-03-2021.
  • It holds a certificate from the inter-ministerial board of certification as notified in the official gazette by the government.


What are other conditions applicable?


  • Business should not be formed by splitting up or reconstruction of a business already in existence.
  • It is not formed by the transfer of any used plant and machinery (with some exceptions).


What is the quantum of deduction?


  • Where Gross total income of an assessee, being a eligible startup, includes any profits and gains derived from the eligible business, a deduction of 100% of such profits will be allowed for 3 consecutive years.
  • The assessee will have the option to select the consecutive 3 years in which he is to claim this deduction out of 5 years beginning from the year of incorporation of such eligible startup.


Mismatch between definitions of Start up as given in Start-Up India Action Plan and Definition in Income Tax Act


  1. The definition given in the Start-up India Action Plan covers 3 types of entities to become an eligible startup;


  • A Private Limited Company
  • A Registered Partnership Firm
  • A Limited Liability Partnership


But, section 80IAC covers on one entity “Company” as per Explanation (ii) of section 80IAC.


This drafting error needs to be correct to make the definition of “Start Up” in congruent with the Action Plan which was introduced earlier.


What will happen if a business ceases to be a Start Up during 5 year period


Nowhere in the section is provided what will happen if an eligible business ceases to be an eligible start up due to crossing of Rs. 25 Crore turnover mark or for any other reason.

Amit Mundhra FCA


Author: Amit Mundhra CA
Amit Mundhra FCA is a Fellow member of the Institute of Chartered Accountant of India. He is senior partner in Karnani & Co., Chartered Accountants. He is having 20+ years of experience in Income Tax, GST, VAT, Accounting, Audit and Assurance field.


  • Rishi Raju

    What if the company, though a start-up, did not get incorporated on or after 01.04.2016, rather was incorporated in 2014. Will such companies be allowed to receive benefits from the concerned section. Further, if yes, how?

  • Virender Jain

    IS any registration required to avail benefit. If yes where to register?

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