How to Get Tax Exemption in India for Startups?

India is home to the third largest startup ecosystem in the world, with nearly 125 unicorn startups functioning currently. One of the major reasons behind the exponential growth of startups in recent years is government support.

With startups emerging as drivers of economic growth, the Indian government launched the Startup India initiative in 2016 to boost entrepreneurship in India. Since then, over 2.12 lakh ventures have been recognized as startups by DPIIT (Department for Promotion of Industry & Internal Trade) as of January 2026.

The startups eligible for Startup India undergo a simplified recognition process and get financial support, various tax exemptions, the option to self-certify compliance, among other benefits. This article discusses how CAs, accountants and other professionals can help their clients run startup businesses with tax exemptions in India.

Conditions to be Eligible for Startup India Program

In order to gain tax exemptions under the Startup India program, a business should fulfill the following conditions:

Must be registered as a Limited Liability Partnership (LLP) or a partnership firm or incorporated as a Private Limited Company (Pvt. Ltd).

Note: For the Section 80-IAC tax holiday specifically, only Private Limited Companies and LLPs are eligible; partnership firms do not qualify for this income tax exemption.

Should not have completed a period of ten years from the date of registration/ incorporation.

Must not exceed an annual turnover of INR 100 crores in any of the financial years since registration/ incorporation.

Should be working towards innovation or improvement of services, products, or processes such that the potential of creating wealth or generating employment is high.

It must be noted that if the business is formed by reconstructing or splitting up a pre-existing business, it is not recognized as a startup.

Related Categories: Income Tax Software | Accounting Software | GST Software

Tax Exemptions Eligible for Startups in India

There are several scenarios of tax exemptions in India that startups can avail.

1. 3-Year Tax Holiday

Recognized startups incorporated between April 1, 2016 and March 31, 2030 can apply for a 100 percent tax deduction and claim all profits for 3 consecutive years out of their first ten years since incorporation under Section 80-IAC of the IT Act. The annual turnover should not exceed INR 100 crore in the year for which the deduction is claimed.

Note: In addition to DPIIT recognition, startups must obtain a Certificate of Eligibility from the Inter-Ministerial Board (IMB) before claiming the Section 80-IAC deduction. IMB certification is a separate application process from DPIIT recognition.

This tax holiday is given to startups for sustaining during their initial years of operation and utilizing their working capital optimally.

In such cases, taxation software like EasyOFFICE can help in automatic generation of balance sheet, trading account, and profit and loss account. It also provides multi-angle MIS reports to understand the performance of a startup so that the exemption can be availed accordingly.

2. Exemption to HUF/Individuals on Investing Long-Term Capital Gain

Under the provisions of section 54GB of the IT act, tax exemption on capital gains invested in eligible startups is available.

If a HUF/ individual sells a residential property to invest the capital gains for subscribing to more than 50% of the equity shares or voting rights of an eligible company/startup, then the tax on long term capital gets exempted.

It must be noted that the shares must not be transferred or sold within 5 years of its acquisition date. The eligible startup must also utilize the subscribed amount for the purchase of eligible assets within the prescribed time limit under Section 54GB.

Earlier, this section only included the SMEs under the MSME Act, 2006. But after the amendment, startups get the opportunity to further expand and grow.

CAs and other tax professionals can keep track of such changes by regularly visiting taxation related websites. Those using taxation software and tools like EasyOFFICE maintain all the direct links to frequent websites in the tax library.

3. Exemption on Long-Term Capital Gains

Under section 54EE, all eligible taxpayers may claim tax exemption on long-term capital gains if the entire gain or a part of it is invested in a long-term specified asset mentioned by central government. Such an investment can be up to INR 50 lakh and must be made within six months from the date of asset transfer.

Investors should verify whether any notified long-term specified fund is currently available before relying on this exemption, as practical availability of this benefit has been limited.

Tax exemption in India can be on the amount of invested capital gain or INR 50 lakh, whichever is lower. However, if the investment is withdrawn before completion of 3 years, then the exemption will be revoked in the year when money is withdrawn. Professionals and companies dealing with taxes can utilize taxation software for dealing with such situations.

For instance, EasyOFFICE software offers features like import and export for handling large volumes of files. Besides auto generation of IT statement and summary of tax calculation, it also provides pre-validation of ITR to prevent errors.

EasyOFFICE

4.6

Starting Price

₹ 3900.00 excl. GST

4. Angel Tax Abolished from April 1, 2025

The angel tax under Section 56(2)(viib) of the Income Tax Act, which previously taxed share issuances by closely-held companies above Fair Market Value as income, has been fully abolished with effect from April 1, 2025, by the Finance Act, 2024.

This means startups can now raise equity funding at any valuation without the risk of the excess premium being treated as taxable income, regardless of whether the investor is a resident individual, angel investor, family member, or fund. No exemption application or net worth threshold needs to be met, as the tax itself no longer exists.

5. Carry Forward of Losses

Recognized eligible startups may obtain relief from certain Section 79 restrictions on carry forward of losses, subject to prescribed conditions. In eligible cases, losses may continue to be carried forward even if there is a change in shareholding, provided all the shareholders who held shares carrying voting power on the last day of the year in which the loss was incurred continue to hold those shares on the last day of the year in which the loss is proposed to be set off.

EasyOFFICE ensures automatic set off & carry forward of losses to ease the work of tax professionals, CAs, and others. You can view income tax summary of previous year to avoid any mistakes. It also integrates with TallyPrime, a popular ERP for SMEs and startups in India.

Conclusion

In the early years, when a startup is still finding its feet, every benefit and Indian tax exemption counts. CAs and other tax professionals can ensure they help their startup clients in filing taxes accurately.

EasyOFFICE taxation software can guide them through a step-by-step process so that they are up-to-date with every regulation and don’t miss out on anything.

Even if your client does not meet the Startup India eligibility criteria, they may still be able to avail benefits under various MSME schemes.