1What tax breaks do recognised startups get?
A 100%-of-profits deduction for three years in the first ten, under Section 80-IAC , for DPIIT-recognised startups meeting the conditions. It applies once you're profitable, so secure recognition early.
Startup founders juggle company tax, their own salary, ESOP pools and eventual exits — and the rules offer real reliefs if you qualify and plan early. Here's how founders can save tax across the business and themselves. Eligibility for the startup-specific reliefs depends on DPIIT recognition and conditions, so confirm before relying on them.
Reviewed by CA Harika Chebolu, FCA · Last updated 2026-06-15
Quick answer
Eligible startups can claim a multi-year profit holiday, founders can structure salary vs dividend, and ESOPs and capital gains need careful timing. Here's the founder's guide.
A DPIIT-recognised startup meeting the conditions can claim a deduction of 100% of profits for three consecutive years out of its first ten (Section 80-IAC). It only helps once you're profitable, but for those years it can wipe out the tax — so get recognised early and track eligibility.
How you take money out — salary, which is deductible for the company but taxed in your slab, versus dividend, which isn't deductible and is taxed in your hands — changes the overall tax. There's no single right answer; model salary vs dividend against both the company's and your personal position.
ESOPs are taxed as a perquisite at exercise and as capital gains at sale; eligible startups get a deferral on the perquisite tax for employees, which is a real hiring advantage. For your own founder equity, the holding period and exit structure drive the capital-gains outcome, so plan the timeline.
Pre-incorporation and setup costs, salaries, cloud and software, marketing and depreciation are all deductible. Disciplined books not only reduce tax but are essential for due diligence when you raise — investors and acquirers will look.
Share issues, valuations and convertible instruments carry their own tax implications, and getting the documentation and valuation reports right keeps you clear of angel-tax-type disputes. This is specialist territory — line up professional help before a round closes.
A 100%-of-profits deduction for three years in the first ten, under Section 80-IAC , for DPIIT-recognised startups meeting the conditions. It applies once you're profitable, so secure recognition early.
It depends on both the company and your personal slab. Salary is deductible for the company but taxed to you; dividend is neither deductible nor exempt. Model both rather than defaulting to one.
As a perquisite at exercise and as capital gains at sale — but eligible startups can defer the perquisite tax for employees, which helps with hiring. Holding period decides the gains treatment.
Raising a round or setting up your ESOP pool? Write to the firm and we'll get the structure and paperwork right.