Section 140 Income Tax Act 2025: Can Startups Claim 100% Profit Deduction?

Section 140 provides a profit-linked tax deduction for qualifying startups incorporated as companies or limited liability partnerships. Learn who qualifies, the deduction period, statutory definitions, audit conditions and restrictions.

Law update: The Income-tax Act, 2025, as amended by the Finance Act, 2026, sets the turnover threshold for an eligible startup at Rs 300 crore in the relevant tax year. Older explanatory pages referring to Rs 100 crore may reflect the earlier law. Check the amended Act for the tax year concerned.

What does Section 140 of the Income-tax Act, 2025 provide?

Section 140, in Chapter VIII, is the special provision concerning profits and gains derived by an eligible startup from an eligible business. It broadly corresponds to former Section 80-IAC of the Income-tax Act, 1961. The deduction is linked to qualifying business profits, not to capital invested, total turnover or general startup expenditure.

Who is eligible to claim the startup deduction?

Entity: The claimant must be a company or limited liability partnership engaged in an eligible business.
Incorporation: The startup must have been incorporated on or after 1 April 2016 but before 1 April 2030.
Turnover: Total business turnover must not exceed Rs 300 crore in the tax year relevant to the deduction claim, under the Finance Act, 2026 amended text.
Certification: The startup must hold the required eligible-business certificate from the notified Inter-Ministerial Board of Certification.
Business substance: The business must meet the statutory eligible-business description and other conditions governing reconstruction, transfer of previously used plant or machinery, audit and profit computation.

Important: Recognition under a startup support programme alone should not be assumed to replace the specific Inter-Ministerial Board certificate required by Section 140.

How much deduction can an eligible startup claim?

The qualifying deduction is 100% of profits and gains derived from the eligible business for three consecutive tax years chosen within the permitted ten-year window beginning with the year of incorporation, subject to the statutory conditions. The three claim years must be consecutive; they are not three arbitrarily separated years.

The deduction cannot exceed eligible business profits and is subject to the overall Chapter VIII restrictions. The provision does not automatically exempt all income of the startup, such as unrelated interest or investment income.

Relevant statutory definitions

Eligible business: A business carried on by an eligible startup involving innovation, development or improvement of products, processes or services, or a scalable business model with high potential for employment generation or wealth creation, as described in Section 140(16)(a).

Eligible startup: A company or limited liability partnership conducting eligible business and satisfying the incorporation-date, turnover and certification requirements of Section 140(16)(b).

Limited liability partnership: A partnership within the meaning of Section 2(1)(n) of the Limited Liability Partnership Act, 2008, as referenced in Section 140(16)(c).

Tax year: The period used for income-tax computation under the Income-tax Act, 2025. Eligibility and profits must be assessed for the particular tax year of the claim.

What audit and anti-abuse conditions apply?

A claimant should maintain audited accounts and furnish the prescribed accountant's report. The Income Tax Department identifies Form 32 under the Income-tax Rules, 2026 for deductions under Section 140(8), with filing by the applicable statutory deadline under Section 63.

Section 140 also contains safeguards dealing with business reconstruction, assets transferred from existing businesses, transfers between eligible and other businesses, and arrangements producing more than ordinary profits. Such transactions may require market-value adjustments or reasonable recomputation. Specified domestic transaction and transfer-pricing rules may also apply where their conditions are met.

Keep incorporation documents, the certification order, financial statements, audit report, profit workings, invoices and supporting records for the claimed years. Do not claim the same qualifying profits twice under overlapping deduction provisions.

Illustrative calculation

Suppose a certified eligible startup reports Rs 80 lakh of qualifying business profit in a selected deduction year, with no disallowance or adjustment. Subject to all statutory requirements, the Section 140 deduction could be Rs 80 lakh. If the company also earns Rs 5 lakh of unrelated investment income, that income is not automatically covered by the eligible-business profit deduction.

This example illustrates the principle only. Actual eligible profits and tax liability depend on the accounts, adjustments and applicable provisions.

Frequently asked questions

Is Section 140 available to proprietorships?

No. The statutory definition of eligible startup specifies a company or limited liability partnership.

Is the startup deduction available for ten years?

The selection window extends over ten years beginning with incorporation, but the 100% profit deduction is available for only three consecutive qualifying tax years.

What is the startup turnover ceiling after the Finance Act, 2026?

The amended Section 140(16)(b) specifies Rs 300 crore for the relevant tax year.

Does DPIIT recognition alone establish eligibility?

No. The specific Inter-Ministerial Board certification requirement and all other statutory conditions must be met.

Is Section 140 of the 2025 Act the same as Section 140 of the 1961 Act?

No. Section 140 of the Income-tax Act, 1961 concerned verification of returns. Section 140 of the Income-tax Act, 2025 concerns a deduction for eligible startups.

Official legal sources

Income-tax Act 2025 as amended Official Form 32 guidance Official section mapping

Updated: 10 November 2026. This article is general legal information; confirm statutory conditions for the relevant tax year.