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Taxation for Startups in India — A Simplified Guide

India’s startup ecosystem continues to expand rapidly, and to support this growth, the Government of India offers several tax incentives that reduce early-stage financial burdens. These tax benefits are available only to startups officially recognised by the government and are designed to help young companies sustain, innovate, and scale in a competitive environment.

If you are building a Private Limited Company or LLP in Raebareli, Uttar Pradesh, understanding these tax reliefs—especially the Section 80-IAC tax holiday—can save lakhs in tax and significantly boost your cash flow.

Startup India Initiative — A Quick Overview

Launched on 16 January 2016, the Startup India Initiative is the flagship program to strengthen the country’s entrepreneurial ecosystem. Under this program, startups get access to:

• Tax incentives

• Easier compliance

• Funding support

• Innovation-based benefits

• DPIIT recognition

The initiative is monitored and executed by the Department for Promotion of Industry and Internal Trade (DPIIT), which ensures that startups across India—including those in Raebareli, Uttar Pradesh—have access to a supportive regulatory environment.

What is DPIIT?

DPIIT (Department for Promotion of Industry and Internal Trade) functions under the Ministry of Commerce & Industry, Government of India.

DPIIT is responsible for:

• Promoting internal trade & commerce
• Improving ease of doing business
• Supporting the welfare of traders & employees
• Creating policies for startup promotion
• Granting DPIIT Recognition to eligible startups

DPIIT recognition is the first—and most essential—step before claiming any startup tax benefit under Income Tax laws.

Why Should a Startup Get DPIIT Recognition?

To access any startup-related tax incentives, a business must first qualify as an ‘Eligible Startup’ under DPIIT Notification No. GSR 127(E) dated 19-02-2019.

Without DPIIT recognition, a startup cannot claim benefits such as:

• Angel tax exemption

• 80-IAC tax holiday

• Relaxation under Section 79

• Multiple incentives under Startup India

If your business in Raebareli, Uttar Pradesh aims to save taxes legally, DPIIT recognition is absolutely mandatory.

Tax Benefits Available to DPIIT-Recognised Startups

Once a startup is recognised by DPIIT and meets all prescribed conditions, it becomes eligible for the following major tax incentives:

1. Angel Tax Exemption — Section 56(2)(viib)*

Startups can receive investment above fair market value without attracting angel tax.
(Note: This section is no longer applicable from AY 2025-26)

2. 100% Tax Holiday — Section 80-IAC

This is the most powerful benefit.

Eligible startups can claim a 100% income tax exemption for any 3 consecutive years out of the first 10 years from incorporation.

This allows startups to reinvest profits into growth, hiring, product development, and expansion.

3. Relaxed Loss Carry-Forward Rules — Section 79

Recognised startups get a liberalised regime for carrying forward and setting off losses, even when shareholding changes—subject to certain conditions.

What Qualifies as a Startup?

Under DPIIT guidelines, an entity is treated as a startup for 10 years from incorporation if it meets the following conditions:

Eligibility Checklist

• It is registered in India as a Private Limited Company, LLP, or Partnership Firm

• Annual turnover since incorporation has not exceeded ?100 crore

• It is innovating, developing, or improving products, services, or processes

• The business model has potential for job creation or wealth creation

• It must not have been formed by splitting or reconstructing an existing business

This definition applies uniformly across India—including businesses operating in Raebareli, Uttar Pradesh.

Eligibility Matrix for Different Startup Entities

*Angel Tax section not applicable from AY 2025-26