Profit-Linked Deductions for Undertakings (Old 80-IA, 80-IAB, 80-IB) Under the Income Tax Act 2025

Sections 138, 139, 140 and 141 of the Income-tax Act, 2025 deal with deductions linked to the profits of a particular undertaking or business. Sections 138, 139 and 141 do not restate the old rules. They say that if you would have been eligible under old section 80-IA, 80-IAB or 80-IB "as if the said Act had not been repealed", the deduction continues, calculated as the old section provided and only for the years the old section would have allowed. Section 140 is a full, self-contained rule for eligible start-ups: 100% of profits for three consecutive tax years chosen out of ten.

Every claim under these four sections needs a tax audit report in Form 32 filed by the specified date under section 63 (rule 66). This guide covers who can claim, what each section says, the start-up conditions in detail, and the audit paperwork. Figures and conditions are taken from the Act as amended by the Finance Act, 2026, and the Income-tax Rules, 2026. Last reviewed against that text on 10 November 2026.

What are profit-linked deductions for undertakings?

A profit-linked deduction lets you reduce your total income by an amount that depends on the profit of one specific undertaking, enterprise or business, not on what you spend or invest. Under the 2025 Act, four sections sit in this group:

Section of the 2025 Act	Business covered	How the deduction is worked out
138	Profits from a business referred to in old section 80-IA (infrastructure development and similar)	As per old section 80-IA, for the years it would have allowed
139	A Developer's business of developing a Special Economic Zone notified on or after 1 April 2005 (old section 80-IAB)	As per old section 80-IAB, for the years it would have allowed
140	Eligible business of an eligible start-up	100% of profits for three consecutive tax years out of ten, under the section's own text
141	Profits from a business referred to in old section 80-IB	As per old section 80-IB, for the years it would have allowed

The three "as if the Act had not been repealed" sections (138, 139, 141) are protective, and they sit alongside the other deductions from total income. They exist so that an undertaking that was already running under the old law keeps the benefit that remains. To work out the amount and the number of years, you still have to read the old section the 2025 Act points to. This article does not reproduce those old sections.

How do sections 138, 139 and 141 work?

All three have the same two-part test, in clauses (a) and (b), followed by two conditions in clauses (i) and (ii).

1. The income must be in your gross total income. Your gross total income must include profits and gains from the business referred to in the old section (80-IA for section 138, 80-IAB for section 139, 80-IB for section 141).
2. You must have been eligible under the old section for that year, "as if the said Act had not been repealed".
3. The amount is calculated as per the old section.
4. The years for which you can claim are only those the old section would have allowed.

Section 139 adds a narrower condition on who can claim. The assessee must be a Developer, and the business must be developing a Special Economic Zone notified on or after 1 April 2005 under the Special Economic Zones Act, 2005.

What is the start-up deduction under section 140?

Section 140(1) gives an eligible start-up a deduction equal to 100% of the profits and gains from its eligible business for three consecutive tax years. Under section 140(2), the assessee chooses which three consecutive years to claim, out of ten years beginning from the year of incorporation.

Who is an "eligible start-up"?

Section 140(16)(b) defines it. All of the following must be true:

Condition	What the Act says	Where
Type of entity	A company or a limited liability partnership	140(16)(b), (c)
Business	Eligible business: innovation, development or improvement of products, processes or services, or a scalable business model with high potential for employment generation or wealth creation	140(16)(a)
Incorporation date	On or after 1 April 2016 but before 1 April 2030	140(16)(b)(i)
Turnover	Total turnover does not exceed Rs 300 crore in the tax year relevant to the year of claim (the Finance Act, 2026 raised this limit from "one" to "three" hundred crore, from 1 April 2026)	140(16)(b)(ii)
Certificate	Holds a certificate of eligible business from the Inter-Ministerial Board of Certification, as notified by the Central Government	140(16)(b)(iii)
Not a rebranded business	Not formed by splitting up or reconstruction of an existing business	140(3)(a)
No second-hand plant	Not formed by transfer to a new business of machinery or plant previously used for any purpose	140(3)(b)

Exceptions to the "no old plant, no reconstruction" conditions

• Imported plant (140(5)). Machinery or plant used outside India by someone other than you is not treated as "previously used" if it was never used in India before you installed it, it is imported into India, and no depreciation has been allowed or is allowable on it for any earlier period.
• Up to 20% transferred plant (140(6)). If previously used machinery or plant moved into the new business is worth no more than 20% of the total value of machinery and plant used in the business, the condition in 140(3)(b) is deemed met.
• Revival after disaster (140(4)). If a business was discontinued because of flood, cyclone, earthquake or similar natural convulsion, riot or civil disturbance, accidental fire or explosion, or enemy action, and it is re-established, reconstructed or revived within three years from the end of that tax year, the "not formed by reconstruction" condition in 140(3)(a) does not apply to it.

How is the profit of the eligible business computed?

The deduction can never exceed the profit of the eligible business, and several anti-abuse rules shape that profit:

• Stand-alone computation (140(7)). For the second and later years, profits are worked out as if the eligible business were the only source of income of the assessee from the initial tax year up to and including the year being computed.
• Market value on transfers (140(9) to (11)). If goods or services move between the eligible business and another business of yours at a price that differs from market value, profit is recomputed at market value. Market value is the open-market price, or the arm's length price where the transfer is a specified domestic transaction under section 164 (arm's length price as defined in section 173(a)).
• Close-connection arrangements (140(13), (14)). If a close connection with another person produces more than the ordinary profit the business would be expected to earn, the Assessing Officer takes the profit that may reasonably be deemed derived. For specified domestic transactions, the arm's length price is used.
• No double claim (140(12)). If profits are claimed under section 140, no deduction for the same profits is allowed under any other provision of Part C of this Chapter.
• Notification power (140(15)). The Central Government can notify that the benefit stops applying to a class of industrial undertaking or enterprise from a stated date.

Worked example 1: start-up deduction with a market-value adjustment

Assumptions (tax year 2026-27): Aarav Tech Private Limited was incorporated in 2021 and holds a valid Inter-Ministerial Board certificate. Its turnover is well under Rs 300 crore. It has chosen 2026-27 as the first of its three claim years. Its eligible business shows a profit of Rs 80,00,000 in its books. During the year it supplied goods to its separate trading unit for Rs 12,00,000, while the open-market price on the transfer date was Rs 15,00,000.

Step	Working	Amount (Rs)
1. Profit as per books of the eligible business	Given	80,00,000
2. Transfer price recorded	Given	12,00,000
3. Market value on transfer date	Given (section 140(11))	15,00,000
4. Add: shortfall to be treated as profit	15,00,000 - 12,00,000	3,00,000
5. Profit for deduction purposes	80,00,000 + 3,00,000	83,00,000
6. Deduction under section 140(1)	100% of 83,00,000	83,00,000

The eligible business was under-credited by Rs 3,00,000 when it sold below market value, so section 140(9) lifts its profit by that amount. Had the goods gone the other way, from the other unit into the eligible business at a price above market value, the eligible profit would have fallen instead.

Worked example 2: does the 20% second-hand plant relief apply?

Assumptions: Nimbus Analytics LLP, incorporated in 2023, plans to claim under section 140. Its machinery and plant used in the business total Rs 5,00,00,000 in value. It moved some previously used machinery from the partners' earlier workshop into the new business.

Scenario	Previously used plant moved in (Rs)	Share of total (Rs 5,00,00,000)	Within 20%?
A	90,00,000	90,00,000 / 5,00,00,000 = 18%	Yes: condition in 140(3)(b) deemed met (140(6))
B	1,20,00,000	1,20,00,000 / 5,00,00,000 = 24%	No: the deeming in 140(6) is unavailable, so the transfer is tested against 140(3)(b) directly

In scenario A the 20% relief covers the transfer. In scenario B the relief is lost, so the LLP would have to show that the imported-plant exception in 140(5) applies to the plant, or it risks failing the "no previously used machinery" condition.

Real-life example: Ravi and the pre-2026 undertaking

Ravi's company has been running a unit for years that qualified under old section 80-IB. For tax year 2026-27 he asks whether the deduction is gone because the 1961 Act was repealed. Under section 141, it is not automatically gone. His company can claim if it would still have been eligible under 80-IB for 2026-27 and the year falls within the years the old section would have allowed. The amount is calculated as per old section 80-IB. If the old section's period ended in an earlier year, section 141 gives nothing for 2026-27. His CA has to read the old section for the unit's start year and eligible period before deciding.

Real-life example: Meena and the SEZ developer

Meena's company develops a Special Economic Zone that was notified in 2007. It is the Developer, and the zone was notified after 1 April 2005, so section 139(a) is satisfied. For each year, the company tests whether it would still be eligible under old section 80-IAB, then claims the amount that section would have allowed. Rule 66(4) requires her to attach a copy of the SEZ notification to Form 32, in Part B3. A different company that is only a tenant unit in the zone, and not the Developer, does not fit section 139.

What audit report and form are needed?

Section 140(8) and rule 66 require the accounts of the eligible business to be audited by an accountant (as defined in section 515(3)(b)) before the specified date referred to in section 63. The assessee must furnish the signed and verified audit report by that date. The deduction is not admissible otherwise.

• Form. The audit report is in Form 32 (rule 66(2)).
• One report per undertaking. Each undertaking or enterprise claiming a deduction files a separate report, with its own profit and loss account and balance sheet drawn up as if it were a distinct entity (rule 66(3)).
• Attachments. The relevant part of Form 32 is filled and supporting documents attached according to the table in rule 66(4).

Section claimed	Part of Form 32	Document to attach (rule 66(4))
138	B2	Copy of Form 10CCB under the Income-tax Rules, 1962 (as it stood before repeal)
139	B3	Copy of the SEZ notification
140	B4	Copy of the Inter-Ministerial Board of Certification certificate
141	B5	Approval and completion certificates of the Housing Project, and a copy of the Board's scheme notification

Common mistakes

1. Assuming repeal ended the old deductions. Sections 138, 139 and 141 continue them for the remaining eligible years. Check the old section's period before dropping the claim.
2. Treating section 140 as a start-up holiday for any new company. The company or LLP needs the Inter-Ministerial Board certificate, incorporation between 1 April 2016 and before 1 April 2030, and turnover within Rs 300 crore.
3. Choosing non-consecutive years. The three claim years must be consecutive, within the first ten years from incorporation.
4. Ignoring inter-unit pricing. Transfers between the eligible business and your other businesses are recomputed at market value (140(9)). Unrecorded or off-market internal pricing changes the deduction.
5. Missing or merged audit reports. Rule 66(3) requires a separate Form 32 per undertaking with its own stand-alone accounts. Filing after the section 63 date puts the deduction at risk (140(8)).
6. Claiming the same profit twice. Section 140(12) bars a second deduction for the same profits under other provisions of Part C.

Quick reference

Point	Detail
Start-up deduction	100% of eligible-business profit
Claim period	3 consecutive tax years out of 10 from incorporation year
Incorporation window	On or after 1 April 2016, before 1 April 2030
Turnover cap	Rs 300 crore
Old second-hand plant relief	Up to 20% of total plant value
Disaster revival window	Within 3 years from end of the discontinuation year
Audit report	Form 32, by the specified date under section 63, one per undertaking

Where this is in the Act

• Section 138: deduction for businesses referred to in old section 80-IA
• Section 139: deduction for a Developer of a Special Economic Zone (old section 80-IAB)
• Section 140: eligible start-ups, including sub-sections (1), (2), (3), (8), (9), (12), (16)
• Section 141: deduction for businesses referred to in old section 80-IB
• Section 63: tax audit and the "specified date"
• Sections 164 and 173(a): specified domestic transactions and arm's length price
• Rule 66: Form 32 audit report and attachments (Income-tax Rules, 2026)

How can a CA firm track these claims?

The hard part for a practice is not the arithmetic. It is knowing which clients have an undertaking still inside its eligible window, which ones need a separate Form 32 this year, and which supporting certificates are still pending. Finexo's practice management software can hold these as client tasks and deadlines with reminders. It does not compute the deduction or prepare the audit report for you. For another deadline-heavy topic in the same Act, see our guide on TDS on rent under the Income-tax Act, 2025.

This article explains the Income-tax Act, 2025 (as amended by the Finance Act, 2026) and the Income-tax Rules, 2026. It is general information, not tax advice. The old sections 80-IA, 80-IAB and 80-IB are not reproduced here; confirm eligibility, amount and years for a specific case with a qualified chartered accountant.