Section 80-IAC Is Now Section 140: Startup Tax Benefits in 2026

DPIIT recognition and the section 140 tax holiday are two different tests, and roughly 3,700 out of about 1.97 lakh recognised startups actually clear the second one.

Last verified: 5 September 2026 · Applies to: Tax Year 2026-27 onwards, under the Income-tax Act, 2025

Contents

• The two things everyone conflates
• DPIIT recognition: the thresholds went up in February 2026
• Section 140, the section that used to be 80-IAC
• The 3,700 number, and what it tells you
• Angel tax: gone, and not re-enacted
• What survived, and still bites
• The ESOP deferral, and its 60-month extension
• Frequently asked questions
• How BVACA can help

The two things everyone conflates

If you read three articles about Indian startup tax benefits, at least two of them will use "DPIIT recognised" and "eligible for the startup tax holiday" as if they meant the same thing. They do not, and the difference is the single most consequential misunderstanding in this area.

• DPIIT recognition is granted by the Department for Promotion of Industry and Internal Trade under the Startup India framework. It is what gets you the recognition certificate, the portal listing, and access to the non-tax benefits.
• The section 140 deduction (what everyone still calls section 80-IAC) is a provision of the Income-tax Act, 2025. It requires DPIIT recognition and a separate certificate from an Inter-Ministerial Board.

DPIIT recognition is necessary. It is nowhere near sufficient. A company can be fully DPIIT recognised, listed on the Startup India portal, and have no entitlement whatsoever to the tax holiday, because it never applied for or never obtained the Inter-Ministerial Board certificate.

This matters commercially, not just technically. Founders build the tax holiday into their financial model on the strength of a recognition certificate, and their advisers discover eighteen months later that the deduction was never available.

DPIIT recognition: the thresholds went up in February 2026

The turnover thresholds for DPIIT recognition were raised by G.S.R. 108(E) dated 4 February 2026:

That is a significant widening, and it is recent enough that a good deal of published material still quotes the older figure. If you were told a year ago that your company had outgrown recognition on turnover, it is worth re-checking against the current numbers.

Our earlier note on Startup India benefits predates G.S.R. 108(E) and the change of Act. Its turnover figures and its section references are both superseded. The position set out here is the current one.

Section 140, the section that used to be 80-IAC

Under the Income-tax Act, 2025, in force from 1 April 2026, the eligible start-up deduction previously at section 80-IAC of the Income-tax Act, 1961 is now at section 140.

The substance carries over. CBDT's stated position on the whole rewrite is that it was done without altering underlying tax policy, so what section 140 gives is what 80-IAC gave:

The turnover ceiling was raised from ₹100 crore to ₹300 crore by the Finance Act, 2026 during passage. The raise did not appear in the Bill as introduced, and a number of secondary sources (and the older Income Tax Department static page) still cite the ₹100 crore figure — those references are out of date. Cite the gazetted Finance Act, 2026 in any formal advice.

Do not conflate this with the DPIIT recognition thresholds. DPIIT recognition itself uses ₹200 crore (general) and ₹300 crore (deep-tech) under G.S.R. 108(E) dated 4 February 2026; those are different numbers in a different instrument for a different test. A company can be DPIIT-recognised without being section 140 eligible and vice versa.

The "3 out of 10" choice is a real decision

The deduction is 100% of profits for three consecutive years chosen out of the first ten. Most early-stage companies are loss-making in years one to four, and a 100% deduction against a loss is worth nothing. The choice of which three years to claim is therefore a planning decision, made with a view of when the business actually turns profitable and stays profitable, because the three years must be consecutive. Claim too early and you burn the relief against small profits. Claim too late and you run out of the ten-year window.

The other structural point: this is a deduction from profits of the eligible business, so it requires the eligible business to be identified and its profits computed separately where the company does more than one thing.

The 3,700 number, and what it tells you

Here is the most useful single statistic on this topic, and it comes from the operation of the start-up ESOP deferral, which uses the same certificate:

Roughly 3,700 companies, out of approximately 1.97 lakh DPIIT-recognised startups, hold the 80-IAC certificate.

That is under 2%.

Read it carefully, because it reframes the entire subject. The tax holiday is not a general benefit of being a startup in India. It is a narrow relief held by a small minority of recognised companies. When a pitch deck, an accelerator programme or a service provider tells you that DPIIT recognition "gives you a three-year tax holiday", the arithmetic says that for 98 companies out of 100 it does not.

There are two sensible responses. If your company is genuinely going to be profitable inside the ten-year window and the deduction is material, apply for the Inter-Ministerial Board certificate deliberately and early, and treat it as a separate project from recognition. If it is not, stop modelling a benefit you do not have, and do not pay anyone to obtain "the tax holiday" as though it came bundled with recognition.

Angel tax: gone, and not re-enacted

Section 56(2)(viib) was omitted by the Finance (No.2) Act, 2024, with effect from AY 2025-26. Under the Income-tax Act, 2025, there is no equivalent provision at all. It was not re-enacted.

This deserves to be stated bluntly because so much published material is now citing a section that does not exist. Any article, checklist, term sheet annexure or engagement letter written after 1 April 2026 that refers to:

• "angel tax exemption under section 56(2)(viib)"
• "DPIIT exemption from angel tax"
• "the startup exemption from section 56(2)(viib)"

is describing a relief from a charge that has been repealed, under a section number that has no counterpart in the current Act. There is nothing to be exempt from.

One practical consequence: the elaborate machinery that grew up around the angel tax exemption, including the declaration a recognised start-up had to file to claim it and the associated investment restrictions, was the price of an exemption that is now moot for current-year transactions. Legacy assessments for pre-abolition years remain enforceable, so the old law still matters for open years, but not for a round you are closing now.

A related casualty is the valuation methodology. The five alternative valuation methods added in 2023, including Comparable Company Multiple and Option Pricing, existed to serve the angel tax provision for non-resident investors and lost their statutory anchor when it was repealed. The rule that now governs the FMV of unquoted equity shares is Rule 57 of the Income-tax Rules, 2026, which replaced Rule 11UA and prescribes a single formula. We have set that out separately in Rule 57, which replaced Rule 11UA.

What survived, and still bites

Angel tax being gone does not mean share issues are tax-free events that nobody will look at. Two provisions remain, and both are live.

Section 102 (formerly section 68), unexplained credits. Section 102 expressly reaches share application money, share capital and share premium. Where the company cannot establish the identity of the subscriber, the creditworthiness of the subscriber and the genuineness of the transaction to the assessing officer's satisfaction, the amount can be brought to tax as unexplained credit. Note also that unexplained income under section 195 (formerly 115BBE) is now charged at 30% rather than 60% following Finance Act 2026, and is now subject to penalty.

In other words, the charge that actually turns up in scrutiny of a funding round is not the one that was repealed. It is the one that asks whether the money is real and whether the investor is who they say they are. What protects you is a documentation trail: the investor's KYC, the source of funds, the banking channel, the board and shareholder resolutions, the return of allotment, and a share certificate issued in time. Keeping that trail intact round after round is a question of who is doing the books, which we set out in our note on the finance function a startup needs at each stage.

Section 92(2)(m) (formerly section 56(2)(x)), receipt of property below FMV. This can tax an investor who receives shares below fair market value. The direction of travel is the opposite of angel tax. Angel tax charged the company on a premium above FMV. Section 92(2)(m) charges the recipient on a discount below FMV.

That asymmetry matters in exactly the situations founders create without thinking: a friends-and-family round issued at par when the company has already raised at a premium, a sweat-equity style allotment to an early advisor, a secondary transfer to an incoming investor at a nominal price. In each case the person receiving the shares, not the company, carries the exposure.

Illustrative example. A company raises a priced round at ₹500 per share. Two months later it allots 20,000 shares to a founder's relative at ₹10 per share, with no valuation support. The gap of ₹490 per share on 20,000 shares is ₹98 lakh of value transferred below FMV. Angel tax would not touch this even when it existed, because it charged premium, not discount. Section 92(2)(m) looks directly at it, in the hands of the recipient.

The ESOP deferral, and its 60-month extension

The same Inter-Ministerial Board certificate unlocks the start-up ESOP tax deferral, which is why the 3,700 figure is known at all.

An employee of an unlisted company pays tax on the ESOP perquisite at exercise, on cash they have not received, in a company whose shares they cannot sell. The deferral, formerly section 192(1C) and now section 392(3) read with section 289(3), postpones that liability for a DPIIT-recognised start-up holding the 80-IAC certificate, until the earliest of the expiry of the deferral window, sale of the shares, or cessation of employment.

The window has been extended:

The extra year is real relief, but it inherits the same narrowness: without the certificate, no deferral. The full mechanics, including the merchant banker valuation that the perquisite calculation depends on, are in how ESOPs are taxed at exercise and at sale.

Frequently asked questions

Is section 80-IAC still valid in 2026?

The relief continues, but the section number does not. The Income-tax Act, 2025 came into force on 1 April 2026 and the eligible start-up deduction is now at section 140. For periods before 1 April 2026 and for pending proceedings, the 1961 Act and section 80-IAC still apply. Cite both when writing for a client.

Does DPIIT recognition give me the tax holiday?

No. DPIIT recognition is a precondition, not the entitlement. The section 140 deduction additionally requires a certificate from the Inter-Ministerial Board. Roughly 3,700 of about 1.97 lakh DPIIT-recognised startups hold that certificate, which is under 2%.

Is angel tax really abolished?

Yes. Section 56(2)(viib) was omitted by the Finance (No.2) Act, 2024 with effect from AY 2025-26, and it was not re-enacted in the Income-tax Act, 2025. There is no equivalent provision in the current Act. Any current article offering an "exemption under section 56(2)(viib)" is citing a repealed section.

If angel tax is gone, do I still need a valuation for a funding round?

Usually yes, for other reasons. Section 102 can bring unexplained share capital and share premium to tax, section 92(2)(m) can tax an investor who receives shares below FMV, and separate valuation requirements arise under the Companies Act, 2013 and the FEMA Non-Debt Instruments Rules where a non-resident is investing. The angel tax charge has gone; the valuation file has not.

What is the DPIIT turnover limit now?

₹200 crore for a general startup and ₹300 crore for deep-tech, raised by G.S.R. 108(E) dated 4 February 2026. Do not carry that number across to the section 140 deduction, which has its own separate threshold.

What is the section 140 turnover limit?

₹300 crore in the previous year for which the deduction is claimed. The ceiling was raised from ₹100 crore by the Finance Act, 2026 during passage. Static reference pages that still cite ₹100 crore are out of date.

What is the incorporation window for the section 140 deduction?

The company must be incorporated between 1 April 2016 and 31 March 2030. The deduction is then 100% of profits of the eligible business for three consecutive tax years chosen out of ten.

How BVACA can help

We advise founders on the part of this that is genuinely decidable: whether the Inter-Ministerial Board certificate is worth pursuing given your projected profitability, which three years to claim the section 140 deduction in, and how to document a funding round so that section 102 is not an argument you have to have two years later.

For companies raising capital, that work sits alongside the valuation and cap table side, including the merchant banker certificate an unlisted company needs before employees exercise options and the Rule 57 position on unquoted share transfers. Our startup fundraise and cap table advisory covers the round documentation, the allotment filings and the tax positions that go with them. Where a number in this article is marked for confirmation, we check it against the gazetted instrument before it goes into a client's file.

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Author box: CA Vijender Singh Bachhal, Managing Partner, Bachhal Vijender & Associates (FRN 028355N), Panchkula. About the firm

Disclaimer: This article is general information current as at 5 September 2026, not advice for a specific situation. Tax and corporate law in India changed materially on 1 April 2026; verify the position before acting. Illustrative examples are not client matters.