Section 140 · Deductions
Section 140 of the Income-tax Act, 2025 — 100% Tax Deduction for Eligible Start-ups (Old Section 80-IAC)
By CA Rajat Agrawal
Updated 04 Jul 2026
Chapter VIII
📜 What the law says — Section 140, Income-tax Act 2025
140. (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 assessee, a deduction of an amount equal to 100% of the profits and
gains derived from such business for three consecutive tax years.
(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.
(3) This section applies to a start-up which fulfils the following conditions:—
(a) it is not formed by splitting up, or the reconstruction, of a business
already in existence;
(b) it is not formed by the transfer to a new business of machinery or plant
previously used for any purpose.
(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—
(a) flood, typhoon, hurricane, cyclone, earthquake or other convulsion of
nature; or
(b) riot or civil disturbance; or
(c) accidental fire or explosion; or
(d) action by an enemy or action taken in combating an enemy (whether
with or without a declaration of war),
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, reconstructed 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.
(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 following conditions
are fulfilled:—
(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
(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
In plain language
Important correction: Section 140 is the start-up deduction, not SEZ (10AA)
If you arrived here looking for the Special Economic Zone (SEZ) units deduction that was old Section 10AA, please note an important mapping point. Under the Income-tax Act, 2025 (in force from 1 April 2026), the SEZ deduction that was earlier Section 10AA of the 1961 Act is now placed in Section 144 — not Section 140.
Section 140 of the Income-tax Act, 2025 actually deals with the 100% profit-linked deduction for eligible start-ups — the re-numbered successor to old Section 80-IAC of the Income-tax Act, 1961. This page explains Section 140 accurately, because on Your-Money-Your-Life tax matters, using the correct section is essential.
What Section 140 means in plain English
- The benefit: A recognised start-up can deduct 100% of the profits and gains from its eligible business, so that profit is effectively taxed at nil.
- How long: The deduction is available for any three consecutive tax years, chosen by the start-up, out of the first ten years beginning from the year of incorporation. You pick the three most profitable years so the tax holiday is not wasted on loss-making early years.
- The idea: It is a growth incentive — the government forgoes tax on three profitable years to help genuine, innovative start-ups scale up, create jobs and generate wealth.
Who can claim it
- Only an "eligible start-up" — a company or an LLP that is recognised by the DPIIT (Department for Promotion of Industry and Internal Trade) and holds a certificate of eligible business from the Inter-Ministerial Board (IMB).
- Incorporated on or after 1 April 2016 and before 1 April 2030 — the Finance Act 2026 continues the extended sunset date of 1 April 2030 for incorporation.
- Turnover cap: Total turnover must not exceed ₹100 crore in the tax year for which the deduction is claimed.
- Nature of business: It must be engaged in innovation, development or improvement of products, processes or services, or a scalable business model with high potential for employment or wealth creation.
Key conditions and limits
- No splitting or reconstruction: The start-up must not be formed by splitting up, or reconstruction, of a business already in existence.
- No old plant and machinery: It must not be formed by transferring plant or machinery previously used (a limited 20% tolerance and imported second-hand machinery exception typically applies, mirroring old 80-IAC).
- Audit is mandatory: The deduction is allowed only if accounts are audited by a chartered accountant and the audit report is filed by the specified date. The return must be filed on time to keep the claim valid.
- Arm's-length transactions: Inter-unit transfers of goods or services must be at market value, so profits are not artificially inflated to grab a bigger deduction.
How it interacts with other provisions
- No double deduction: Profit already deducted under Section 140 cannot be claimed again under other profit-linked deduction sections of Chapter VIII.
- MAT / AMT still apply: Even during the tax holiday, companies and LLPs may face Minimum Alternate Tax / Alternate Minimum Tax, so the "zero tax" is not always fully zero. Credit for AMT/MAT paid can be carried forward.
- Angel-tax and carry-forward of losses: Start-up-friendly rules on set-off of losses despite change in shareholding continue alongside Section 140 in the 2025 Act.
Practical implications
For founders, Section 140 is one of the most valuable incentives available. Because you can choose which three consecutive years to apply it, tax planning matters — front-loading the holiday onto loss years wastes it. Get DPIIT recognition and the IMB certificate early, keep audited books, and time the claim to your most profitable stretch within the ten-year window.
💡 Example
Worked example 1 — choosing the right three years. TechNova Pvt Ltd is a DPIIT-recognised start-up incorporated in FY 2026-27. Its profits are: Year 1 loss of ₹40 lakh, Year 2 profit ₹10 lakh, Year 3 profit ₹1.2 crore, Year 4 profit ₹2 crore, Year 5 profit ₹2.5 crore. Since it can pick any three consecutive years out of ten, it chooses Years 3, 4 and 5. Deduction = 100% of ₹1.2 cr + ₹2 cr + ₹2.5 cr = ₹5.7 crore of profit fully exempt. At a 25% corporate rate that is roughly ₹1.42 crore of tax saved (before MAT/surcharge/cess).
Worked example 2 — turnover cap breach. GreenCart LLP claims Section 140 in a year where its turnover is ₹110 crore. Because turnover exceeds the ₹100 crore limit for that year, the deduction is not available for that particular year. It must shift its three-year window to years where turnover stays within ₹100 crore.
A relatable story. Priya and Arjun launched a health-tech start-up. In the early years they burned cash and made losses, so they smartly did not start their Section 140 holiday. By Year 4 they turned profitable, got their IMB certificate in order, kept audited accounts, and elected Years 4-6 for the deduction — legally paying almost no income tax on three of their best years and reinvesting the savings into hiring.
| Feature | Section 140, Income-tax Act 2025 (Start-ups) | Section 144, Income-tax Act 2025 (SEZ units — old 10AA) |
|---|
| Old 1961 section | Section 80-IAC | Section 10AA |
| Who benefits | DPIIT-recognised eligible start-up (company/LLP) | Entrepreneur running a unit in an SEZ |
| Deduction amount | 100% of eligible business profits | 100% for first 5 years, 50% next 5, 50% of ploughed-back profit next 5 |
| Period | Any 3 consecutive years within first 10 years from incorporation | Up to 15 years (as under old 10AA) |
| Key numeric limit | Turnover up to ₹100 crore; incorporate before 1 Apr 2030 | Must satisfy SEZ Act, 2005 conditions |
| Certificate needed | Inter-Ministerial Board (IMB) certificate | SEZ / Development Commissioner approval |
| Audit | Mandatory CA audit + timely return | Mandatory CA audit report |
Related sections
Section 144 — Deduction for newly established SEZ units (old 10AA) Section 141 — Deduction for profits from certain industrial undertakings Section 142 — Deduction for profits from housing projects Section 63 — Audit of accounts / specified date for deductions Section 205 — Alternate/Minimum tax on certain companies and cooperatives Section 2 — Definitions (eligible start-up, eligible business, turnover)
Frequently asked questions
Is Section 140 of the Income-tax Act 2025 about SEZ units (old 10AA)?
No. Section 140 is the eligible start-up deduction (old Section 80-IAC). The SEZ units deduction that was old Section 10AA is now Section 144 of the 2025 Act.
How much tax can a start-up save under Section 140?
An eligible start-up can deduct 100% of its eligible business profits for any three consecutive years chosen from the first ten years after incorporation, effectively paying no income tax on those profits (subject to MAT/AMT).
Which start-ups qualify for Section 140?
A company or LLP that is DPIIT-recognised, holds an Inter-Ministerial Board certificate, is incorporated on or after 1 April 2016 and before 1 April 2030, and has turnover up to ₹100 crore in the relevant year.
Can I choose which three years to take the deduction?
Yes. You may claim it for any three consecutive tax years within the first ten years from incorporation, so you can time it to your most profitable years and not waste it on loss years.
Do I still have to pay any tax during the holiday?
Possibly. Minimum Alternate Tax (for companies) or Alternate Minimum Tax (for LLPs) can still apply during the deduction period, though credit for such tax paid can generally be carried forward.
What happens if my turnover crosses ₹100 crore?
For any year in which turnover exceeds ₹100 crore, the deduction is not available; you would need to place your three-year window in years where turnover stays within the limit.
Is an audit compulsory to claim Section 140?
Yes. Your accounts must be audited by a chartered accountant and the audit report filed by the specified date, and the return should be filed on time, or the deduction can be denied.
C
CA Rajat Agrawal
Chartered Accountant, EaseValue · Reviewed 04 Jul 2026
This explainer is prepared and reviewed by EaseValue's tax team, based on the text of the Income-tax Act, 2025 (as amended by the Finance Act, 2026).
Disclaimer: This page explains the law in general terms for education and is not professional advice. The Income-tax Act, 2025 takes effect from 1 April 2026; provisions, thresholds and interpretations may change. Please confirm your specific position with our team before acting.
💬 Discussion & questions
0 comments · Ask anything about this — a Chartered Accountant or the community will reply.
Have a doubt about this (Section 140)? Ask here 👇
Free · takes 20 seconds · our CA answers. No account needed.
No comments yet — be the first to ask. 👆
EaseValue