How Can Employers & Salaried Employees Easily Download Form 130 (earlier Form 16)?
16 Jul, 2026
By Online Legal India
Published On 14 Jul 2026
Updated On 27 Jul 2026
Category Other
Managing cash flow is one of the biggest challenges for startups because revenue often lags behind the upfront expenses required to scale. Rapid burn rates and frequent expenditure on inventory, hiring, & marketing often result in delayed receivables and a critical liquidity crunch. However, under the flagship government scheme, the Startup India initiative, Section 80-IAC, DPIIT-recognized startups are eligible for a 100% income tax exemption on profits for any 3 consecutive years within their first 10 years of incorporation. This comprehensive guide explains everything you need to know about Startup Tax Exemption, including the key eligibility criteria and steps to claim tax exemptions.
This particular government initiative allows DPIIT-recognized startups to pay zero income tax/100% income tax exemption on profits for any 3 consecutive years within the first 10 years of their incorporation under Section 80-IAC of the Income Tax Act.
To claim Startup tax exemption, a particular startup must be:
Note: The most important thing to remember here is that if the startup fulfils all the above-mentioned eligibility criteria, it may choose only 3 consecutive tax-exemption years within the first 10-year window. Also, startups using previously utilised plant and machinery exceeding 20% of their total asset value are not eligible for this.
A foreign-funded/NRI-invested startup can apply for tax exemption benefits if it is headquartered or registered as a company/LLP within India because the general DPIIT Startup Recognition rules apply to both domestic and foreign-backed entities, uniformly.
Recognised Deep Tech Startups may retain Startup recognition for up to 20 years from the date of incorporation or registration, depending upon the eligibility criteria prescribed under DPIIT Notification G.S.R. 108(E) and the applicable Startup India framework. Further, recognised Deep Tech Startups are also eligible for a higher turnover threshold of up to Rs. 300 crore in any financial year since incorporation or registration, depending upon the conditions prescribed under the applicable DPIIT notification.
Section 80-IAC is the specific provision within the Income Tax Act, 1961, a governing statute for tax laws in India. This provision was specifically created to fulfil the tax-relief promises of the Startup India Initiative scheme, a government program that drives entrepreneurship, supports budding businesses, and provides an overarching policy and business ecosystem to foster young companies.
Under Section 80-IAC, eligible startups can deduct 100% of their profits for any three consecutive years out of their first ten years. Since the tax liability becomes nil under this specific provision, they are also eligible for this startup tax exemption for those years, resulting in freed-up capital for reinvestment.
Getting your innovative early-stage startup officially recognised by the DPIIT under the Startup India Initiative qualifies your business for tax benefits, relaxed compliance, and easier government procurement. Not only does it lower your operational costs significantly but also empowers you to focus entirely on scaling your business.
DPIIT recognition functions as an official government certification that lets your early-stage startups in India access the Startup India framework.
Below, we have mentioned the most significant financial, operational, regulatory, IPR cost savings, compliance, and startup tax exemption benefits of DPIIT recognition.
To obtain recognition from the DPIIT for your startup and apply for the Section 80-IAC startup tax exemption, you must upload a few scanned documents in PDF format on the official Startup India Portal.
Below are the specific documents you need to upload:
Note: Though it’s optional, submitting supporting documentation may facilitate faster review, subject to the verification process and timelines of the concerned authority.
Once your startup gets officially recognised by the DPIIT, you need to apply for tax exemption through the Inter-Ministerial Board.
For that, you need to submit the following documents:
There are two things you should do to avail the startup tax exemption benefits.
We will share the exact steps with you below so that you can apply for both of these without any hassle
DPIIT recognition officially certifies that your startup is qualified for IPR support, easier public procurement, and is eligible to access funding schemes.
For that, you need to apply for DPIIT Startup Recognition via the NSWS portal. However, before doing that, make sure your business is registered as a Pvt. Ltd. or LLP, or structured as a Registered Partnership Firm.
The steps you need to follow are as below
Now, coming to the tricky part…
Next, you just need to submit the application. Once it gets approved, you may download your official recognition certificate directly from the NSWIS dashboard or from the Startup India Hub. Usually, applications submitted with the appropriate documents get processed within 2 working days, depending on processing timelines, which may vary based on document completeness, verification requirements, and the workload of the concerned authority. Further, the NSWS portal does not charge you anything for the application.
Now, you need to keep one thing in mind.
Even if your startup gets the official recognition from the DPIIT, it does not automatically grant you these startup tax exemption benefits. To get those, you must apply for the 80-IAC tax exemption separately via the official Startup India portal.
But before we discuss the steps, let’s first get a deeper insight into the major reasons because of which your application for DPIIT recognition might get rejected and also let’s talk a bit about the startup sectors and entities that are not eligible for this.
There might be a lot of reasons for which a DPIIT recognition application may get rejected.
Below, we have mentioned the most common ones.
Most importantly, if your startup was incorporated more than 10 years ago and if its annual turnover has exceeded Rs. 100 crores in any of the previous Financial Years, your application will get rejected.
There are a few entities, corporate structures, sectors, and business models that do not qualify for DPIIT recognition.
We have mentioned them below.
In short, any startup that is not incorporated or registered within India, run by a single individual/Hindu Undivided Family, and operating without a formal corporate registration certificate, is not eligible to apply for DPIIT recognition.
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Kindly note that ordinary trading startups, local restaurants, standard service providers, and consulting agencies that lack a scalable business model and do not focus on employing or innovating are not eligible to apply for DPIIT recognition. |
Also, any startup operating in domains/industries that are specifically prohibited by Indian law or that is formed by the splitting up/reconstruction of an already existing business is also not eligible for this.
Note: Startups older than 10 years from their initial date of incorporation (20+ years for recognised DeepTech startups) with an annual turnover exceeding Rs 200 Crores in any of the previous FY (Rs. 300 Crores for DeepTech startups) are already disqualified for DPIIT-recognition application.
DPIIT-recognised startups in India are eligible for some major tax incentives and exemptions. However, since we have already talked about two of the key benefits that include a 3-year profit holiday, officially granted under Section 80-IAC of the Income Tax Act, and Angel Tax Exemption, in this section, we will talk about the rest of the benefits your startup will get once it gets the official recognition from the DPIIT.
Under Section 54 GB of the Income Tax Act, Individuals or HUFs can avoid paying long-term capital gains tax from the sale of a residential property only if they invest the net consideration into equity shares of an eligible startup and utilise the funds to buy new assets, e.g., plant, computers, machinery, etc., for their startup within one year from the date of share subscription.
Startups usually operate at a loss in the early years and typically use multiple funding rounds because they need to burn their capital initially to build products, introduce them, retain users, and ensure scaled brand growth in the market.
Under Section 79 of the Income Tax Act, a closely-held company cannot carry forward losses if its shareholding shifts by more than 49%. However, if there were no relaxation, the startups would forfeit accumulated losses and face severe tax liabilities during early-stage profitability, resulting in eroded cash flows, deterred VS investments, and rigorously suppressed market expansion and startup growth.
However, the Indian Government relaxed this provision for eligible DPIIT-recognised startups to encourage market growth and scaling. In this case, the 51% ownership continuity rule does not apply as long as the original shareholders who hold shares in the year the loss was incurred continue to own some shares in the year the loss is being carried forward to.
Further, the eligible DPIIT-recognised startups can carry forward the losses for up to 10 years and in the meantime, new investors can also join the startup.
Eligible DPIIT-recognised startups are allowed to defer the payment or deduction of tax on Employee Stock Ownership Plans (ESOPs) and even delay it until a liquidity event occurs, up to 48 months from the end of the relevant AY in which the ESOP was allotted, the date the employee resigns from the startup, and the date the employer sells or transfers the shares, whichever of these happens first.
However, to qualify for this ESOP tax deferral, your startup must hold an active Section 80-IAC certification from the Inter-Ministerial Board (IMB). Without it, the ESOP perquisite tax is normally due immediately in the FY in which the options are exercised.
Eligible DPIIT-recognised startups can claim a 100% actual expenditure deduction on research and Development under Section 35 of the Income Tax Act. So, you can deduct exactly the amount you spent (100% of it) on Research and Development from your net taxable income, which would help your operations run.
Since startups particularly need to focus on constant inventions and the operations are often run at a higher cost, these R&D tax deductions would definitely help facilitate scaled market growth.
By allowing deduct revenue expenditures such as lab consumables, R&D staff salaries, and certain capital expenditures (excluding land), the Government helps you utilise the money to keep your operations financially viable. However, there is one condition, and that is the expenses must be related to your startup’s business.
As promised before, we will talk about how you can claim a 100% income tax exemption for your startup under Section 80-IAC. Not only the step-by-step filing process, but we will also talk about the documents you need to claim the tax holiday and the compliance requirements.
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It is important because obtaining DPIIT recognition is just the prerequisite, not the tax holiday itself. To claim a 100% tax holiday on profits for 3 years under Section 80-IAC of the Income Tax Act, your startup must pass the secondary evaluation by the Inter-Ministerial Board (IMB) that proves that it genuinely drives innovation/wealth creation. |
To claim the Startup Tax Exemption under Section 80-IAC, the first thing you must do is obtain DPIIT recognition and secure your official DPIIT Recognition Certificate. However, since we have already talked about the application process for DPIIT recognition, we will start discussing the next steps.
Once you have got your hands on the DPIIT Recognition Certificate, start compiling supporting documents that prove your startup’s scalability, market viability, and innovation. The documents that you need for this include your incorporation documents, audited financial statements, Income Tax Returns, and a detailed business pitch deck.
Once you are sorted with everything, then:
Once you are done, the IMB will review your application and may ask for a live demo or a few additional clarifications before approving. After the IMB issues your Certificate of Eligible Business, you may choose any 3 consecutive FYs to claim the tax holiday while filing your standard ITR.
Though we have already talked about it previously, there are some other documents as well that you might need for successful claiming of the tax holiday benefits.
Below is a comprehensive list that mentions all the documents you need for this purpose.
So, mostly you need documents with which you filed the application for DPIIT recognition. Only a few more things, like ITR, Board Resolution, etc., you will need for this purpose.
The compliance requirements are also more or less similar to those needed for DPIIT recognition.
But, the most important thing to remember here is that to claim the deduction, you must file your annual Income Tax returns because you need to attach your IMB/DPIIT documents while filing your returns.
Apart from the above-mentioned startup tax exemption benefits, the Government has also designed a few non-tax benefit measures to successfully minimise cash outflows and operational friction, specifically in the early years of business development.
Below, we have mentioned the most common non-tax benefits that startups are eligible for:
Under this protection, eligible startups will receive up to an 80% & 50% rebate on patent filing fees and trademark applications, respectively. Also, the Government will provide them with experienced IP facilitators and bear their professional service charges through the Scheme for Facilitating Startups Intellectual Property Protection (SIPP).
FFS is a financial entity, initiated with a dedicated pool of money amounting to Rs. 10,000 crores to be strategically invested for a specific economic/developmental goal. Though it does not invest directly in startups, it commits capital to SEBI-registered Alternative Investment Funds (AIFs) that subsequently invest in eligible startups.
This is one of the most profitable schemes that allocates Rs. 945 Crores to eligible incubators. Managed by DPIIT, this scheme provides you with financial help in two stages so that you can get your startup off the ground.
Here, eligible startups may apply for financial assistance under the applicable government schemes, subject to the relevant eligibility criteria, evaluation process, approval, and availability of funds.
This is a Government of India initiative that provides collateral-free debt funding to early-stage startups/businesses of up to Rs. 20 Crore, primarily to encourage financial institutions such as Scheduled Commercial Banks, NBFCs and SEBI-registered AIFs to lend to budding startup owners/entrepreneurs without requiring physical assets as security.
This NCGTC-administered scheme provides up to 85% guarantee coverage for loans up to Rs. 10 Crore and 75% guarantee coverage in default for loan amounts exceeding Rs. 10 Crore (up to the Rs. 20 Crore cap) that significantly reduce the risk for institutional lenders. The guarantee coverage is subject to the prevailing CGSS guidelines, operational framework, and subsequent amendments issued by the Government.
Self-certification provisions relate primarily to specified labour and environmental laws and should not be linked to Income Tax inspections.
Also, the Fast Track Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code (IBC) enables eligible startups to efficiently restructure or liquidate by providing a time-bound, cost-effective, and professional method to insolvency resolution in 90 to 135 days, much faster than the usual CIRP timeframe, which results in lowered expenses, decreased company disruption, and protected asset value.
DPIIT-recognised startups do not have to prove they have the technical skills and facilities to do a specific job in order to win lucrative government contracts. Also, they are exempt from the turnover criteria in government tenders and eligible to get relaxations on Earnest Money Deposit (EMD).
However, kindly note that the eligible and DPIIT-recognised startups still need to prove that they have the technical capabilities and facilities to fulfil the specific scope, meet the quality standards of the job, and do justice to the assigned roles/responsibiities because the Government does not compromise on technical requirements for the safety/success of a project.
The Indian Government offers three types of financial support to startups who work in the cleantech, robotics, and industrial automation sectors so that they can start and scale gradually, develop new ideas, build factories, and buy new materials.
Below is the breakdown:
While the income earned in FY 2025-2026 falls under the former 1961 Act, current-year operations are governed by the Income Tax Act, 2025. However, Tax provisions are subject to amendments. Readers should verify the latest applicable provisions, notifications, circulars, and government guidance before relying on any tax benefit.
The core startup tax exemptions to utilise include:
Previously, we discussed a few things to keep in mind that would help you avoid rejections for the application for DPIIT recognition. However, filing for startup tax exemptions requires precise compliance, proper planning, and accurate filings. For that, you need to pay meticulous attention to the filing details so that you can avoid penalties/rejected applications.
Below, we have mentioned 6 mistakes that you should be aware of:
Under this provision, startup founders like you can now reinvest early-stage profits into critical growth areas such as research, development, and expanding your customer base. However, for that, you need to maintain a clean tax history, apply for the DPIIT registration, obtain a Certificate of Eligible Business from the Inter-Ministerial Board (IMB), and claim the specific 80-IAC deduction benefits. So, follow the right steps, and you can successfully utilise your capital to scale your startup and ensure a solid market expansion in the future years.
We hope this blog has addressed all your queries. For further clarifications, you can comment below. We would be happy to resolve your doubts.
Ans: Though it typically takes 3 to 9 months, the exact timeline to get approval for the Section 80-IAC startup tax exemption largely depends on the duration of the IMB inspection and the accuracy & authority of your documents.
Ans: Both Section 54EE and Section 54GB of the Indian Income Tax Act provide significant tax relief on LTCG. However, Section 54EE offers a startup tax exemption for investing in specific government-notified funds, while Section 54GB provides tax exemption to individuals/HUFs who reinvest gains into the equity shares of an eligible startup, as long as the gains specifically come from the sale of a residential property (house or plot of land).
Ans: No. A standard partnership firm is not eligible to claim the Section 80-IAC tax holiday, as this profit-linked IT exemption is strictly limited to Pvt. Ltd. companies and LLPs. However, if your startup is structured as a partnership firm, you must convert it into an LLP or a Pvt. Ltd. company to access this benefit.
Ans: No. A startup cannot simultaneously claim both Section 80-IAC and Section 115BAB. You must choose one between these two, and the selection is typically irreversible.
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