Common Tax Deductions for Startups in India: Your Practical, Founder-Friendly Guide

Chosen theme: Common Tax Deductions for Startups in India. Navigate real-world deductions, avoid costly mistakes, and turn compliance into runway. Share your experience, ask questions, and subscribe for founder-tested insights tailored to India’s startup ecosystem.

Eligibility and the 80-IAC Tax Holiday

To claim the 80-IAC deduction, startups generally need DPIIT recognition, incorporation within the notified window, and compliance with turnover and innovation criteria. Keep approvals, certificates, and incorporation documents handy, because a missing paper can derail a perfectly valid claim.

Founders often rush to claim the tax holiday at the first sign of profit. A wiser play is to model revenue ramps, loss set-offs, and investor timing to pick the three highest-profit years. Share your projections and we’ll highlight common blind spots.

Maintain clear proof that your business wasn’t formed by splitting up an existing unit, track turnover thresholds, and file returns on time. A Bengaluru fintech founder wrote us after losing a year of deduction due to a missed compliance date—don’t repeat that mistake.

Rent, utilities, and remote-work setups

Office rent, co-working passes, electricity, and internet bills are typically deductible when incurred wholly and exclusively for business. For remote teams, capture home-office policies, invoices, and cost-sharing rules to substantiate claims during assessments without last-minute scrambling.

Marketing, SaaS subscriptions, and cloud infrastructure

Performance ads, design tools, CRM, analytics, and cloud hosting are common startup lifelines and usually deductible. Keep vendor contracts, GST invoices, and usage logs. Remember, input tax credit and income-tax deductions interact differently, so record both cleanly to avoid confusion.

Hiring Incentives: Section 80JJAA and Payroll Deductions

Section 80JJAA allows a deduction on additional employee cost for eligible businesses, typically for three assessment years. Track new hires, qualifying days of employment, bank-paid salaries, and statutory registrations. A Chennai SaaS startup funded a vital tool upgrade from the tax saved here.

Hiring Incentives: Section 80JJAA and Payroll Deductions

Employer contributions to PF and ESI are deductible when paid on time, while delays can trigger disallowances. Automate due-date reminders, reconcile payroll ledgers monthly, and preserve challans. This simple discipline safeguards deductions you are otherwise fully entitled to claim.

Claiming scientific research expenses under Section 35

Revenue and eligible capital expenditure on scientific research, excluding land, can be deductible when properly documented. Track lab time, vendor invoices, trials, and outcomes. An Ahmedabad hardware startup reduced taxable income dramatically by recording every prototype iteration and test result.

In-house labs, approvals, and contract research

If you operate an in-house R&D function or use contract labs, keep detailed project charters, agreements, and experiment logs. Past weighted deductions have evolved, but robust evidence still unlocks full current entitlements and defends your position during scrutiny.

Capital Expenditure and Smart Depreciation Planning

Classify assets accurately—computers, servers, furniture, electricals, vehicles, and leasehold improvements often carry different rates. Even small misclassifications compound over years. A clean fixed-asset register with invoices, serial numbers, and put-to-use dates is your best friend at assessment time.

Capital Expenditure and Smart Depreciation Planning

Intangibles like application software, trademarks, and patents typically qualify for depreciation when owned and used for business. Maintain purchase agreements and valuation reports. Founders frequently miss intangible schedules entirely, leaving deductible value unclaimed for years.

Losses, Unabsorbed Depreciation, and the Section 79 Relaxation

Carry forward and set off of business losses

File returns on time to preserve loss carryforwards. Model future profits, 80-IAC timing, and set-offs before locking your plan. A Kolkata founder regained control of projections after noticing how one delayed filing would have wiped out two years of usable losses.

Unabsorbed depreciation: the quiet compounding ally

Unlike business losses, unabsorbed depreciation can often be carried forward indefinitely and set off broadly. Maintain detailed schedules, asset-wise links, and annual reconciliations. This cushion pairs well with a post–tax-holiday profitability ramp.

Shareholding continuity and startup-specific relief

Eligible startups may access a relaxed rule for shareholding continuity when carrying forward losses. Track investor entries, exits, and ESOP exercises carefully. Before your next round, simulate Section 79 impact so deductions and carryforwards remain intact.

Sector-Specific and Investment-Linked Deductions

Capital expenditure in specified businesses like cold chains, warehousing, and certain infrastructure can qualify for a 100% deduction subject to conditions. Verify eligibility early, because project structure decisions made today determine tomorrow’s tax outcome.

Sector-Specific and Investment-Linked Deductions

Affordable housing, renewable energy, and infrastructure projects may carry unique deduction pathways. Map incentive overlaps, project timelines, and state-level sweeteners. A clean matrix often reveals a smarter sequence of investments you might otherwise miss.