Section 140
Section 140: the eligible-startup profit deduction (tax holiday)
Section 140 is the Income-tax Act, 2025's version of the deduction most founders know as "80-IAC" - the tax holiday that lets an eligible startup deduct 100% of the profits from its eligible business for three consecutive years, chosen out of its first ten years. This is separate from DPIIT recognition itself, though DPIIT recognition is typically a prerequisite for a startup to be treated as "eligible" for this deduction.
What the deduction gives you
Where an eligible start-up's gross total income includes profits and gains from its eligible business, 100% of those profits and gains can be deducted for three consecutive tax years.
The three years don't have to be the startup's first three years - they can be any three consecutive years chosen out of the ten years beginning from the year the startup was incorporated, at the startup's own option.
Conditions to qualify
A startup must meet both of these conditions to use this section:
- It was not formed by splitting up or reconstructing a business that already existed.
- It was not formed by transferring machinery or plant previously used for another purpose into the new business.
An exception worth knowing about
If a business is discontinued because of extensive damage or destruction (flood, earthquake, riot, fire, enemy action, and similar events), and the business is re-established, reconstructed or revived within three years of the end of that tax year, the "not formed by reconstruction" condition above does not disqualify it.
Frequently asked questions
Is this the deduction people call "80-IAC"?
Yes - the profile is the same (100% profit deduction for 3 consecutive years out of the first 10 for an eligible startup), now under Section 140 of the Income-tax Act, 2025.
Do I have to claim the deduction starting from year one?
No - you can choose any three consecutive years out of your startup's first ten years to claim the 100% deduction, whichever three years make the most sense for your business.
Does DPIIT recognition automatically give me this deduction?
DPIIT recognition is generally a prerequisite for being treated as an "eligible start-up," but the Section 140 deduction itself still needs to be separately claimed against actual profits, and the startup must independently satisfy the conditions in this section (not formed by splitting up or reconstruction, etc.).
Want this applied to your actual filing, not just explained?
Check your eligibility for the Section 140 startup tax holidayLast updated 9 September 2026