Turnover Thresholds for Start-Up Tax Holiday: Changes in 2026 and Implications for Funded Start-Ups

Introduction : Startup founders and their advisors have been grappling with the implications of changes in DPIIT recognition rules during the first half of 2026, seeking to understand both what has changed and what has not. According to the notification dated 4 February 2026, the turnover threshold for recognition as a startup has been doubled, which is positively received by the growth-stage companies. However, the turnover thresholds applicable to claiming tax holiday under Section 80-IAC of the Income Tax Act have not changed, and for many Series B and Series C funded start-ups, it may prove to be an issue this year. In this blog, we outline what changes to DPIIT recognition rules, what eligibility and documentation criteria for tax holiday are, and what actions should be taken to maintain benefits.

What the 2026 Notification Actually Changed

On 4 February 2026, the DPIIT issued Gazette Notification G.S.R. 108(E) amending the rules for DPIIT recognition. Most significantly, the turnover threshold for crossing 100 crore rupees in gross receipts as of any fiscal year was increased from 100 crore rupees to 200 crore rupees. Additionally, a new category of a Deep Tech Startup was introduced which allows recognition for a period of 20 years (as compared to 10 years for the previous categories) and a turnover threshold of 300 crore rupees. The eligibility criteria for DPIIT recognition was also expanded to include cooperative societies and multi-state cooperative societies in addition to private limited companies, LLPs, and partnership firms.

For a fast-growing funded startup which has been growing at an increased pace fueled by Series B or Series C funding, this change is positively received since a company with a turnover of, say, 90-100 crore rupees will be able to apply for government tenders via GeM while continuing to hold DPIIT recognition as a startup according to the new rules.

The Gap that Founders Keep Missing

Despite the apparent benefit of higher turnover thresholds for maintaining DPIIT recognition, there is another nuance which is likely to catch out many growth-stage startups which are considering raising Series B or Series C funding in 2026 or 2027. Specifically, DPIIT recognition and the benefits derived therefrom (such as tax holiday under Section 80-IAC of the Income Tax Act) are governed by separate legal regimes.

According to the practice as of the middle of 2026, tax holiday under Section 80-IAC can be claimed for a startup which has a turnover of up to 100 crore rupees in a given fiscal year for which the holiday is claimed. Note that as of February 2026, the turnover threshold for recognition as a startup was amended to 200 crore rupees, but not the turnover threshold for claiming the tax holiday which is still at 100 crore rupees as per the notification dated 3 April 2019 issued by the Central Board of Direct Taxes (CBDT).

The discrepancy between the two turnover thresholds for DPIIT recognition (200 crore rupees) and tax holiday (100 crore rupees) is not new. Similar concerns were raised by taxpayers back in 2019 when the new DPIIT recognition rules were introduced which effectively also doubled the turnover threshold for DPIIT recognition from 50 crore rupees to 100 crore rupees. Pursuant thereto, the CBDT issued a clarification (Notification No. 35/2019 dated 19 April 2019) with regard to the applicability of Section 80-IAC of the Income Tax Act which governs the tax holiday benefits for eligible startups.

As clarified by the CBDT in 2019, the turnover threshold for claiming the tax holiday benefits under Section 80-IAC for startups recognised by DPIIT as of the said date shall be determined by the Explanation to Section 80-IAC which refers to the provisions of the DPIIT Notification dated 23 February 2019, which in turn contains the turnover thresholds for recognition as a startup. By virtue of such a reference, the CBDT made it clear that the turnover threshold for claiming the tax holiday benefits under Section 80-IAC for startups recognised by DPIIT as of the said date would be the same as the turnover threshold for DPIIT recognition, i.e., 100 crore rupees. Thus, according to the CBDT, the turnover threshold for claiming the tax holiday under Section 80-IAC of the Income Tax Act is not an independent parameter which is periodically reviewed by the government, but it follows from the DPIIT Notification on Recognition of Startups dated 23 February 2019.

It must be noted that as of February 2026, the DPIIT Notification on Recognition of Startups has been amended for the second time, and now the turnover threshold for DPIIT recognition has been increased to 200 crore rupees. The logical question arises whether the turnover threshold for claiming the tax holiday benefits under Section 80-IAC of the Income Tax Act will also increase to 200 crore rupees automatically by virtue of the reference to the DPIIT Notification on Recognition of Startups dated 23 February 2019, or whether it would require a separate clarification from the CBDT or an amendment to the Finance Act, 2023. Until such a clarification is issued by either the CBDT or the Ministry of Finance, an eligible startup which intends to claim the tax holiday benefits under Section 80-IAC may prudently elect to apply for recognition as a startup under the new DPIIT rules which contemplate a higher turnover threshold for DPIIT recognition, but at the same time, such a startup may have to give up on the benefits of the tax holiday as claimed for three consecutive years if its turnover for any of those years crosses the 100 crore rupees threshold.

Eligibility and Documentation, in Practice

An important note of caution should be made regarding eligibility for claiming tax holiday benefits under Section 80-IAC of the Income Tax Act. Namely, eligibility for claiming the tax holiday benefits under Section 80-IAC is governed by separate rules and requires separate eligibility criteria. Whereas eligibility for DPIIT recognition is governed by the DPIIT Notification on Recognition of Startups, eligibility for claiming the tax holiday benefits is governed by the Income Tax Act, specifically, Section 80-IAC and the Rules thereunder.

In particular, to claim the benefits of a tax holiday under Section 80-IAC, a startup must obtain a certificate of eligibility from the Inter-Ministerial Board (IMB) which is issued on the basis of Form 80-IAC. An eligible entity is a private limited or an LLP incorporated between 1 April 2016 and 31 March 2030 (extended by the Union Budget 2025-26 for another five years). Notably, partnership firms, one-person companies, and other similar entities are not eligible for recognition under the Income Tax Act. At the same time, such entities may be eligible for DPIIT recognition as of 4 February 2026. As such, even though such entities may benefit from the enhanced DPIIT recognition rules as of February 2026, they will not be able to claim the benefits of the tax holiday under Section 80-IAC.

Another important nuance pertains to the documentation. The IMB will scrutinise a startup’s application for eligibility for a tax holiday to ensure that the entity is actually engaged in innovation, development of new products or processes, or a scalable model with potential to generate employment or wealth. As such, a startup must prepare a detailed application in support of its claims. It is advisable to elaborate sufficiently on the innovative aspects of the proposed project since many applications for tax holidays have been rejected due to generic descriptions of proposed innovations. The application must also include statements of income and turnover for each relevant year, a certificate of DPIIT recognition, documents pertaining to incorporation, and a detailed description of the business model and its innovative aspects.

Eligibility Implications for Series B and C Funded Start-Ups

As stated previously, the eligibility for claiming the benefits of a tax holiday under Section 80-IAC of the Income Tax Act has separate requirements which are governed directly by the Income Tax Act. The most pertinent requirement for growth-stage startups is that the turnover or gross receipts of a startup must not exceed 100 crore rupees in any of the three consecutive years for which a tax holiday is claimed. 

This requirement has not changed with the amendment to the DPIIT Notification on Recognition of Startups dated 4 February 2026 which effectively doubled the turnover threshold for DPIIT recognition to 200 crore rupees. For a fast-growing startup which has already crossed the 100 crore rupees in turnover or is expecting to do so in the near future, such a rule may severely restrict the ability of the startup to claim a tax holiday. This is especially true for a startup which is raising Series B or Series C funding and thus has already achieved commercial success and sustainable revenue growth, but still wants to take advantage of the tax holiday benefits as contemplated by Section 80-IAC for three years as a newly funded startup.

With regard to the documentation, it is always advisable to have a separate tracking in place for DPIIT recognition and the tax holiday eligibility since a lapse in either of the two can lead to dire consequences. The best way to ensure ongoing eligibility for the tax holiday benefits under Section 80-IAC is to plan the annual turnover with due regard to the 100 crore turnover threshold. It is advisable to choose the three consecutive years for claiming the benefits of a tax holiday with due regard to the potential profit during those years, since a startup that chooses the years with the lowest profit will obviously benefit more from claiming a tax holiday.

Compliance Steps Worth Taking Now

1. Obtain IMB Eligibility Certificate in Advance of Crossing the Turnover Threshold

As noted previously, obtaining eligibility to claim the benefits of a tax holiday under Section 80-IAC is governed by separate rules. It is always advisable to obtain the eligibility certificate from the IMB in advance of crossing the 100 crore rupees turnover threshold.

2. Choose the Tax Year with Highest Profitability for Tax Holiday Claim

It is advisable to claim the tax holiday benefits for the three consecutive years with the highest potential profitability for the startup rather than choosing the earliest three profitable years.

3. Maintain a Separate Tracking Schedule of Turnover for Tax Holiday Eligibility

It is always advisable to maintain a separate schedule to track turnover with reference to the 100 crore rupees turnover threshold for eligibility for claiming the benefits of a tax holiday under Section 80-IAC to make sure that the three consecutive years have been chosen with due regard to the potential profitability.

4. Monitor DPIIT Recognition and IMB Eligibility for Tax Holiday Benefits Separately

Since DPIIT recognition and eligibility for claiming the benefits of a tax holiday are separate legal regimes, it is always advisable to monitor both regimes with separate checks and balances in place to ensure continued eligibility under both.

5. Determine Tax Holiday Eligibility in Cases of Borderline Turnover with Specialised Counsel

Given the uncertainty regarding the interaction between the 100 crore rupees turnover threshold for eligibility for claiming the benefits of a tax holiday and the 200 crore rupees turnover threshold for DPIIT recognition, it is always advisable to consult with specialized counsels on the matter of eligibility for claiming the benefits of a tax holiday in the case of a startup which is at or near the 100 crore rupees turnover threshold.

Conclusion

The changes to the DPIIT Notification on Recognition of Startups dated 4 February 2026 have generally been received positively by the startup community since the amendments contemplate significant relaxation of the eligibility criteria for DPIIT recognition. At the same time, it is crucial for eligible startups, especially the ones that are considering raising Series B or Series C funding, to understand that DPIIT recognition and the tax holiday benefits under Section 80-IAC of the Income Tax Act are governed by separate legal regimes and therefore should be treated as two separate compliance matters. In particular, startups that are considering raising Series B or Series C funding should take into account both the 100 crore rupees turnover threshold for claiming the benefits of a tax holiday and the 200 crore rupees turnover threshold for continued DPIIT recognition as of 4 February 2026.

Author: Vaishnavi Ariyeri in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.

Endnotes/ References

1. Department for Promotion of Industry and Internal Trade, Ministry of Commerce and Industry- "Startup India Initiative and Related Schemes" https://www.startupindia.gov.in/

2. Press Information Bureau, Government of India- "DPIIT Approves 187 Startups For Tax Relief Under Revised Section 80-IAC Framework

3. Mondaq- "Legal Update: DPIIT Notification on Deep Tech Startups, 2026"

4. Business Standard- "CBDT Clarifies Small Start-ups With Turnover Up To Rs 25 Crore To Continue To Get Tax Holiday"

5. Business Standard- "I-T Bill 2025: Deduction of SSY, NPS, EPF & ELSS Now Fall Under Section 123"