The Income-tax Act 2025, effective from April 2026, offers improved tax deduction contours for eligible start-ups, with new compliance and eligibility criteria aimed at fostering innovation and scalable ventures beyond traditional firms.
India’s new Income-tax Act, 2025 gives eligible start-ups a fresh tax break from April 1, 2026, replacing the older Section 80-IAC regime with Section 140. Under the provision, qualifying companies and limited liability partnerships can claim a 100% deduction on profits from an eligible business for three consecutive tax years, chosen from the first 10 years after incorporation. The aim is to support ventures built around innovation, development, improvement or scalable business models, rather than simply newly formed firms.
According to the text of Section 140 reproduced by Indian Kanoon, the relief is limited to start-ups incorporated on or after April 1, 2016 and before April 1, 2030, with turnover in the relevant claim year capped at ₹300 crore. The same provision also requires certification from the Inter-Ministerial Board of Certification, underscoring that DPIIT recognition alone is not enough to secure the deduction. Industry explainers from AUBSP, Lawspedia, EZTax and CACLubIndia describe the measure as a carry-forward of the earlier start-up deduction framework, but with a higher turnover ceiling and updated compliance rules.
The law also prevents existing businesses from dressing up as new ventures merely to access the benefit. Section 140 bars entities formed through splitting up or reconstructing an old business, although it allows exceptions for enterprises revived after serious disruption such as floods, earthquakes, riots, fires, explosions or enemy action. It also places limits on the use of second-hand machinery, permitting some pre-used plant only where its value stays within 20% of the total machinery base, while imported equipment that has not previously been used in India may still qualify if no Indian depreciation was ever allowed on it.
The deduction applies only to profits directly linked to the eligible business, not to a start-up’s overall receipts. That means interest, dividends, rental income, capital gains and unrelated business income generally fall outside the relief. Related summaries also note that start-ups must maintain separate records for the eligible business and obtain an audit report in Form 32 from a practising chartered accountant before making the claim in the income tax return.
For founders, the practical point is timing. The three-year window need not begin immediately after incorporation, so a start-up expecting stronger profits later may choose to defer the claim. But once the deduction is selected, the years must be consecutive and the conditions must be met for each one individually, including the turnover test, certification, audit and filing deadlines.
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