Startup Tax Benefits 2025: 80-IAC is Now Section 140
- Section 80-IAC renumbered as Section 140. Three-year tax holiday for DPIIT-recognised startups continues.
- Angel tax (old Section 56(2)(viib)) abolished from April 2024. New Act retains the abolition.
- Startups can carry forward losses up to 10 years under the relaxed Section 79 rules (against the usual 8 years).
- ESOP taxation for eligible startups remains deferred until sale or 5 years from allotment, whichever is earlier.
If you run a DPIIT-recognised startup in India, tax benefits are a critical part of your financial planning. The new Income Tax Act 2025 continues all existing startup tax benefits. Old Section 80-IAC is now Section 140. Here is the complete picture.
Key Section Mapping for Startups
3-Year Tax Holiday: Now Section 140
The startup tax holiday under old Section 80-IAC continues under new Section 140. The eligibility and benefits remain identical:
- Eligibility: DPIIT-recognised startup, incorporated as a company or LLP
- Benefit: 100% deduction of profits for any 3 consecutive years out of the first 10 years from incorporation
- Turnover limit: Annual turnover must not exceed Rs 100 crore in the year for which deduction is claimed
- Important: This deduction is available only under the old tax regime
Angel Tax: Relaxed and Reorganised
Angel tax (old Section 56(2)(viib)) taxed share premium received by startups above fair market value. Key points under the new act:
- DPIIT-recognised startups continue to be exempt from angel tax
- The provision has been reorganised under new Section 92 (Income from Other Sources)
- The exemption notification for DPIIT startups remains in force under the new act
- Non-DPIIT companies receiving share premium above FMV are still subject to this provision
ESOP Taxation: Deferred Payment Continues
The ESOP taxation deferral for eligible startups continues under the new act:
- Tax trigger: ESOPs are taxed as perquisites when exercised (difference between exercise price and fair market value)
- Deferral benefit: For eligible startups, TDS on ESOP perquisite is deferred until the earliest of: sale of shares, departure from the company, or 5 years from allotment
- Eligibility: DPIIT-recognised startups that issue ESOPs to employees
Loss Carry-Forward for Startups
Startups get a special concession on loss carry-forward that continues under the new act:
- Normal companies lose the right to carry forward losses if shareholding changes by more than 49%
- Eligible startups can carry forward losses even if shareholding changes, provided all original shareholders continue to hold shares on the last day of the year
- Losses can be carried forward for up to 8 assessment years (same as before)
DPIIT Recognition: Still the Gateway
To access any of these benefits, your startup must have DPIIT recognition. The process remains the same:
- Apply on the Startup India portal (startupindia.gov.in)
- Must be incorporated as a private company, LLP, or partnership firm
- Must not be older than 10 years from date of incorporation
- Annual turnover must not have exceeded Rs 100 crore in any financial year
- Must be working towards innovation, development, or improvement of products/services
Frequently Asked Questions
What is the new section for startup tax holiday (80-IAC)?
Section 80-IAC is now Section 140 under the Income Tax Act 2025. DPIIT-recognised startups can still claim 100% tax holiday on profits for any 3 consecutive years out of the first 10 years from incorporation.
Do startups still get angel tax exemption?
Yes. DPIIT-recognised startups continue to be exempt from angel tax on share premium received from resident investors. The provision has been reorganised under new Section 92 but the exemption remains in force.
Is the startup tax holiday available under the new tax regime?
No. The Section 140 (old 80-IAC) startup tax holiday is available only under the old tax regime. If your startup opts for the new regime, you cannot claim this deduction.
Can startups carry forward losses after a shareholding change?
Yes. Eligible DPIIT-recognised startups get a special concession. They can carry forward losses even if shareholding changes by more than 49%, provided all original shareholders still hold shares on the last day of the year.
For the DPIIT recognition application that unlocks all of these benefits, see DPIIT recognition 2026 guide. For the entity choice that precedes DPIIT (LLP vs Pvt Ltd), see LLP vs Private Limited.
Disclaimer: This article provides general information about the Income Tax Act 2025 and is not tax advice. Consult a qualified Chartered Accountant for advice specific to your situation.
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