TaxTMI 
TaxTMI 
Eligible business of eligible startup - S.140 and S.80-IAC of Income-tax Act 2025 and 1961 respectively analysed.
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....ligible business of eligible startup - S.140 and S.80-IAC of Income-tax Act 2025 and 1961 respectively analysed.<br>By: - DEV KUMAR KOTHARI<br>Income Tax<br>Dated:- 29-9-2026<br>Abbreviation used : ITA 1961 or 61 Act - The income-tax Act, 1961 ITA 2025 or 25 Act - The income-tax Act, 2025 ITR 1962 or 62 Rules - Income Tax Rules 1962 ITR 2026 Or Rules 2026- Income-tax rules 2026 TY- Tax year in ITA 2025 PY - Previous year in ITA 1961. In the table below provisions are reproduced with highlights added by learned author for analysis. Provisions in ITA 1961 are placed in rearranged manner to match with corresponding provisions of ITA 2025 S.140 of ITA 2025 S. 80-IAC of ITA 1961 placed in matching order Remarks 140. Special provision in respect of specified business. [Special provision in respect of specified business. Same but in different style see note after table. (1) Where the gross total income of an assessee, being an eligible start-up, includes any profits and gains derived from eligible business, there shall, as per and subject to the provisions of this section, be allowed, in computing the total income of the assess....
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....ee, a deduction of an amount equal to 100% of the profits and gains derived from such business for three consecutive tax years. 80-IAC. (1) Where the gross total income of an assessee, being an eligible start-up, includes any profits and gains derived from eligible business, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to one hundred per cent. of the profits and gains derived from such business for three consecutive assessment years. Same with changes for TY / PY (2) The deduction specified in sub-section (1) may, at the option of the assessee, be claimed by him for any three consecutive tax years out of ten years beginning from the year in which the eligible start-up is incorporated. (2) The deduction specified in sub-section (1) may, at the option of the assessee, be claimed by him for any three consecutive assessment years out of ten years beginning from the year in which the eligible start-up is incorporated. Three consecutive years out of ten years is at option of assessee. (3) This section applies to a star....
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....t-up which fulfils the following conditions:- (3) This section applies to a start-up which fulfils the following conditions, namely:- Word namely is not in ITA2025 (a) it is not formed by splitting up, or the reconstruction, of a business already in existence; (i) it is not formed by splitting up, or the reconstruction, of a business already in existence: same (b) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Found in proviso (4) Where the business of any undertaking carried on in India is discontinued in any tax year by reason of extensive damage to, or destruction of, any building, machinery, plant or furniture owned by the assessee and used for the purposes of such business as a direct result of- Provided that this condition shall not apply in respect of a start-up which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as referred to ....
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....in section 33B, in the circumstances and within the period specified in that section; In ITA 2025 different situations are mentioned specifically. In ITA 1961 these were taken by way of reference to S.33B of ITA 1961. (a) flood, typhoon, hurricane, cyclone, earthquake or other convulsion of nature; or do (b) riot or civil disturbance; or Do (c) accidental fire or explosion; or do (d) action by an enemy or action taken in combating an enemy (whether with or without a declaration of war), do and thereafter, at any time before the expiry of three years from the end of such tax year, the business of such undertaking is re-established, re-constructed or revived by the assessee, the condition referred to in sub-section (3)(a) shall not apply to such undertaking which is so re-established, reconstructed or revived. do (5) For the purposes of sub-section (3)(b), any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if all the follow....
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....ing conditions are fulfilled:- Explanation 1.- For the purposes of this clause, any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if all the following conditions are fulfilled, namely:- Found in Explanation in ITA 1961 (a) such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India; (a) such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India; (b) such machinery or plant is imported into India; and (b) such machinery or plant is imported into India; (c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee. (c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allow....
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....able under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee. (6) Where in the case of a start-up, any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed 20% of the total value of the machinery or plant used in the business, then, for the purposes of sub-section (3)(b), the condition specified therein shall be deemed to have been complied with. Explanation 2.-Where in the case of a start-up, any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent. of the total value of the machinery or plant used in the business, then, for the purposes of clause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with. (7) Irrespective of anything contained in any other provision of this ....
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....Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the tax year immediately succeeding the initial tax year or any subsequent tax year, be computed as if such eligible business was the only source of income of the assessee during the initial tax year and to every subsequent tax year up to and including the tax year for which the determination is to be made. (4) The provisions of sub-section (5) and sub-sections (7) to (11) of section 80-IA shall apply to the start-ups for the purpose of allowing deductions under sub-section (1). Sub-sections 7-15 of S.140 of ITA 2025 were covered by reference to S.80-IA in S.80IC (8) The deduction under sub-section (1) from profits and gains derived from an eligible business shall not be admissible unless the accounts of the eligible business for the tax year for which the deduction is claimed have been audited by an accountant, before the specified date referred to in section 63 and the assessee furnishes by that date the report of such audit in the prescribed form duly s....
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....igned and verified by such accountant. do (9) In a case where, any goods or services held- do (i) for the purposes of the eligible business are transferred to any other business carried on by the assessee; or do (ii) for the purposes of any other business carried on by the assessee are transferred to the eligible business, and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods or services as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods or services as on that date. do (10) For the purposes of sub-section (9), where, in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may....
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.... deem fit. do (11) For the purposes of sub-section (9), "market value", in relation to any goods or services, means- do (i) the price that such goods or services would ordinarily fetch in the open market; or do (ii) the arm's length price as defined in section 173(a), where the transfer of such goods or services is a specified domestic transaction referred to in section 164. do (12) Where any amount of profits and gains of an undertaking or of an enterprise in the case of an assessee is claimed and allowed under this section for any tax year, deduction to the extent of such profits and gains shall not be allowed under any other provisions of Part C of this Chapter and shall in no case exceed the profits and gains of such eligible business of undertaking or enterprise, as the case may be. do (13) Where it appears to the Assessing Officer that owing to the close connection between the assessee carrying on the eligible business to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the ....
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....business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in such eligible business, the Assessing Officer shall, in computing the profits and gains of such eligible business for the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to have been derived therefrom. do (14) Where the arrangement as mentioned in sub-section (13) involves a specified domestic transaction referred to in section 164, the amount of profits from such transaction shall be determined having regard to arm's length price as defined in section173(a). do (15) The Central Government may, after making such inquiry as it may think fit, direct, by notification, that the exemption conferred by this section shall not apply to any class of industrial undertaking or enterprise with effect from such date as it may specify in the notification. do (16) For the purposes of this section,-- Explanation- (a) "eligible business" means a business carried out by an eligible start-up engaged in innovation, development or ....
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....improvement of products or processes or services or a scalable business model with a high potential of employment generation or wealth creation; 3[(i) "eligible business" means a business carried out by an eligible start-up engaged in innovation, development or improvement of products or processes or services or a scalable business model with a high potential of employment generation or wealth creation;] Explanation.-For the purposes of this section,- (b) "eligible start-up" means a company or a limited liability partnership engaged in eligible business which fulfils the following conditions:- (ii) "eligible start-up" means a company or a limited liability partnership engaged in eligible business which fulfils the following conditions, namely:- Exp. (i) it is incorporated on or after the 1st April, 2016 but before the 1st April, 2030; (a) it is incorporated on or after the 1st day of April, 2016 but before the 1st day of April, 12[2030]; Exp. (ii) the total turnover of its business does not exceed 1[three] hundred crore rupees in the tax year relevant to the tax year for which deduction....
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.... under sub-section (1) is claimed; and b) the total turnover of its business does not exceed 7[one hundred] crore rupees 5[in the previous year relevant to the assessment year for which deduction under sub-section (1) is claimed]; and Exp. (iii) it holds a certificate of eligible business from the Inter-Ministerial Board of Certification as may be notified by the Central Government; (c) it holds a certificate of eligible business from the Inter-Ministerial Board of Certification as notified in the Official Gazette by the Central Government; Exp. (c) "limited liability partnership" means a partnership referred to in section 2(1)(n) of the Limited Liability Partnership Act, 2008 (6 of 2009). (iii) ''limited liability partnership'' means a partnership referred to in clause (n) of sub-section (1) of section (2) of the Limited Liability Partnership Act, 2008 (6 of 2009)]. Exp. ************** NOTES:- 1. Substituted vide Section 46 of the Finance Act, 2026 w.e.f. 01-04-2026 before it was read as, "one" &nbs....
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....p; Heading of section: presentation difference is due to change in style. In ITA 2025 section number is mentioned in heading of section whereas in ITA 1961 it is at beginning of section. In view of author this should not make a difference. However, litigant brains can be applied to make out a difference and it is to be seen in future how differentiation is made tax authorities not to follow binding precedence under ITA 1961 about same and similar provisions. Provisions of ITA 2025 are intended to be same and similar as in ITA 1961. However, some changes in wordings, and style of drafting are likely to create attempt of distinguishing by taxpayer and tax officers both for not following rulings available in relation to ITA 1961 while working in regime of ITA 2025. In particular provisions directly contained in section of ITA 2025 and adopted in section of ITA 1961 from other sections falling under different headings and chapters are more vulnerable to disputes. =============<br> Scholarly articles for knowledge sharing by authors, experts, professionals ....