How startups can legally pay zero tax for three years — Expert explains tax breakup

Startups in India are sitting on a golden opportunity to pay absolutely zero income tax for three consecutive years—but surprisingly, many founders have no idea such a benefit even exists. According to CA Nitin Kaushik, a practising Chartered Accountant and advisor to several startups, Section 80-IAC of the Income-tax Act, 1961, offers one of the most generous tax breaks available for new businesses in India.

“The Government of India actually wants you to grow—and here’s proof,” says Kaushik. “If your business is a Private Limited Company or LLP, is recognised as a startup by the Department for Promotion of Industry and Internal Trade (DPIIT), is less than 10 years old, and your turnover is under ₹100 crore, then you can claim a three-year tax holiday under Section 80-IAC. Yes, zero income tax for three consecutive years—legally.”

For early-stage businesses, this can be a game-changer. Startups often operate on tight margins, pouring resources into product development, market acquisition, and team building. Cash flow is crucial, and the potential savings from this tax exemption can run into lakhs of rupees. “Over 180 startups have already availed themselves of this benefit. Why not yours?” Kaushik notes. “I keep telling founders—this is probably the only time the government is effectively saying, ‘Bhai, kamao… Par tax mat do!’”

Yet, there’s a critical detail many entrepreneurs overlook: the tax holiday isn’t automatic. Startups must actively apply for it. “Here’s the catch most people miss,” Kaushik explains. “You need to apply for this benefit on the Startup India portal and get DPIIT recognition. It’s not something your CA can simply declare for you in your tax filings.”

The application process requires startups to submit several documents through the Startup India portal. These include incorporation documents, business plans, financial statements, and details about the innovative nature of the business. Once DPIIT grants recognition, startups can then apply to the Central Board of Direct Taxes (CBDT) for the official income tax exemption certificate.

Introduced on 1 April 2017, Section 80-IAC was designed to energise India’s startup ecosystem by easing financial pressure in the crucial early years. Under this provision, eligible startups can deduct 100% of profits from taxable income for any three consecutive years within their first ten years of operation. The idea is to help startups focus on growth and innovation rather than worrying about tax burdens when they are still finding their footing.

Budget 2025 brought significant good news for entrepreneurs. The government extended the deadline for eligible startups’ incorporation from 2025 to 2030, offering a longer window for new businesses to qualify for the benefit.

However, Kaushik cautions that eligibility comes with strict conditions. “To qualify, your startup’s activities must be innovative, scalable, and have the potential to generate employment or create wealth,” he says. Routine businesses offering services without significant innovation may not make the cut. Additionally, the startup’s turnover should remain below ₹100 crore in the financial year preceding the assessment year in which the deduction is claimed.

Startups must also be genuinely new businesses. They cannot simply be restructured or spun off from existing entities, unless the original business suffered extensive damage due to natural disasters or other unforeseen events like riots, civil disturbances, or accidents.

Despite the paperwork involved, Kaushik urges founders to explore this route. “This can save you lakhs of rupees, which you can reinvest into your business—hiring talent, developing technology, or expanding your market,” he emphasizes. “If you or your friends run a startup or dream of starting one, you should absolutely look into this.”

As India’s startup ecosystem grows rapidly, Kaushik believes it’s crucial for founders to stay informed about benefits designed specifically for them. “At the end of the day, the government wants startups to succeed,” he says. “These policies are proof of that commitment.”

Section 80-IAC represents not just a tax benefit, but a vote of confidence in India’s entrepreneurial spirit—an opportunity founders should not let slip by unnoticed.