Account Assure
Compliance · Advisory · Assurance
 Knowledge Series · No. 1
August 2026
 
Startup India · Direct Tax · Funding
The Money on the Table
Every monetary benefit a DPIIT-recognised startup can claim in FY 2025-26 — the tax holiday, the seed capital, the credit guarantee, the fee rebates — and the small print that decides whether you actually get it.
February 2026 doubled the turnover ceiling for startup recognition to ₹200 crore. Companies that aged out or scaled past the old ₹100 crore limit are eligible again — and most of them have not checked.
The Benefit Stack At A Glance
100%
Profit deduction · Sec 80-IAC
Any 3 consecutive years out of the first 10. Needs IMB approval, not just DPIIT recognition.
₹20 lakh + ₹50 lakh
Seed Fund Scheme
Grant for proof of concept, plus convertible debt for market entry. Routed via approved incubators.
₹20 crore
Credit guarantee cover · CGSS
Collateral-free debt. Doubled from ₹10 crore. Accessed through a bank, NBFC or venture debt fund.
₹10,000 crore
Fund of Funds · SIDBI
Invested into SEBI-registered AIFs, which invest into startups. Indirect route.
80% / 50%
Patent / trademark fee rebate
Plus expedited patent examination and a facilitator whose fees the government pays.
Nil
Angel tax
Sec 56(2)(viib) omitted from 1 April 2025 — for every closely held company, not only recognised startups.
01  The Gateway: DPIIT Recognition
Everything below sits downstream of recognition. Gazette Notification G.S.R. 108(E) dated 4 February 2026 replaced the 2019 framework and reset the eligibility maths.
CriterionWhere it stands now
Eligible entitiesPrivate limited companies, LLPs, partnership firms and — new in 2026 — state and multi-state cooperative societies. Proprietorships and HUFs remain outside.
Age window10 years from incorporation for standard startups; 20 years for the new Deep Tech category.
Turnover ceiling₹200 crore in any financial year since incorporation, doubled from ₹100 crore. ₹300 crore for Deep Tech. Crossing it even once ends recognition from that year onward.
Deep Tech categoryAI, quantum, biotech, advanced materials, semiconductors, space tech — subject to demonstrated R&D intensity and IP creation.
Structural testNot formed by splitting up or reconstructing an existing business, and working toward innovation, improvement or a scalable model.
Fund-use restrictionNo deployment into residential real estate, luxury assets, speculative instruments or unrelated lending — through the whole recognition period, not just at application.
Recognition is not permanent. It lapses automatically when the age or turnover test is breached, so eligibility is worth re-testing every year rather than assumed from the certificate date. Application is free, on the National Single Window System.
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02  Income Tax Benefits
Section 80-IAC — The Three-Year Tax Holiday
PointWhat it means
The benefit100% deduction of profits of the eligible business for any three consecutive years chosen out of the first ten years from incorporation.
A second applicationDPIIT recognition does not activate it. A separate application to the Inter-Ministerial Board is required, and approval typically takes several months.
Turnover cap for the claimTurnover must not exceed ₹100 crore in the year the deduction is claimed — a separate and lower cap than the ₹200 crore recognition ceiling.
Entity restrictionPrivate limited companies and LLPs only. Partnership firms and cooperative societies do not qualify even while holding DPIIT recognition.
Incorporation sunsetEligibility runs to startups incorporated before 1 April 2030, following the Finance Act, 2025 extension.
The 115BAA trapA company on the 22% concessional rate cannot claim 80-IAC. The election is irrevocable — run the comparison on projected profits before electing, not after.
MAT still appliesMinimum Alternate Tax continues on book profits during the exempt years for companies outside the 115BAA regime.
Angel Tax — Abolished, But Not Retrospectively
PointWhat it means
Effective dateSection 56(2)(viib) omitted with effect from 1 April 2025 (AY 2025-26 onward) under the Finance Act, 2024.
ScopeAll investor classes — resident, NRI and foreign — and all closely held companies, not only recognised startups. No Form 2 declaration or DPIIT exemption route needed for new rounds.
Legacy exposurePremium received before 1 April 2025 remains governed by the old provision. Open assessments for AY 2023-24 and 2024-25 still need valuation defence under Rule 11UA.
Section 68 survivesSource of funds must still be explained — identity, creditworthiness and genuineness documentation for investors remains mandatory.
ESOPs — The Deferral Most Teams Never Use
The perquisite is taxed at exercise, long before any liquidity. Employees pay real tax on paper gains. The deferral fixes the timing.
PointWhat it means
The deferralTDS on the perquisite is deferred to the earliest of 48 months from the end of the relevant assessment year, the date of sale of shares, or the date the employee leaves.
Who can use itOnly startups holding an IMB certificate under 80-IAC. This is why the IMB application is worth filing even by a loss-making startup with no tax holiday to claim yet.
Second layerCapital gains apply separately on eventual sale, with FMV on the exercise date as cost of acquisition.
Employer's burdenThe deferral is administered by the company — valuation at each exercise event, an ESOP policy that reflects it, and clear communication to option holders.
Capital Gains And Loss Carry-Forward
SectionWhat it means
54GBIndividuals and HUFs may claim exemption on long-term capital gains, including from residential property, by investing the net consideration into equity of an eligible startup, on the conditions prescribed.
54EELong-term gains reinvested into notified startup funds, capped at ₹50 lakh, with a three-year lock-in on the units.
79Carried-forward business losses survive a change in shareholding only if the original shareholders continue to hold their shares. A term-sheet-stage check, not a year-end one.
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03  Funding Access
Four pools, four different gatekeepers, four different stages. Founders routinely apply to the wrong one, or apply directly where the scheme does not accept direct applications.
SchemeWhat it offers · how it is accessed
Seed Fund Scheme (SISFS)Up to ₹20 lakh as a milestone-linked grant for proof of concept, prototype or product trials, and up to ₹50 lakh as convertible debentures or debt-linked instruments for market entry and commercialisation. Applied for through DPIIT-approved incubators, whose committee selects and disburses — never directly to DPIIT. Broadly for startups incorporated within the last two years with majority Indian promoter shareholding.
Credit Guarantee Scheme (CGSS)Collateral-free debt. Guarantee cover per borrower now ₹20 crore, doubled under the revised framework — 85% of the amount in default on loans up to ₹10 crore, 75% above that. Annual guarantee fee cut to 1% p.a. for the notified champion sectors. Reached through a member lending institution: bank, NBFC or SEBI-registered venture debt fund.
Fund of Funds (FFS)A ₹10,000 crore corpus operated by SIDBI, invested into SEBI-registered AIFs which in turn invest into startups. The route to this money is a conversation with the participating AIFs, not an application to SIDBI.
Deep Tech runwayThe 2026 category keeps R&D-heavy ventures inside the benefit perimeter for 20 years instead of 10 — decisive for founders whose commercialisation timeline was always going to outrun the old window.
Seed fund money is milestone-linked, reportable, and cannot be spent on building physical facilities. Misuse triggers recovery and blacklisting. Treat it as restricted capital from day one.
04  Compliance, Procurement And IP
BenefitWhat it means
Self-certificationRecognised startups may self-certify compliance under specified labour and environment laws on the Shram Suvidha portal, with no inspections for five years from incorporation. The clock runs from incorporation, not recognition — a startup recognised in year three gets two years, not five. It must actually be filed; the benefit does not switch on by itself.
Public procurementOn GeM, recognised startups are exempt from prior turnover and prior experience criteria and from earnest money deposit requirements. For a product with a government or PSU buyer, this is the difference between ineligible and shortlisted.
IP fee rebates80% rebate on patent filing fees, 50% on trademarks, expedited examination of patent applications, and an empanelled facilitator whose professional fees the government bears. Across a portfolio of filings this runs into lakhs.
Faster winding upStartups meeting the prescribed conditions can be wound up on a fast-track basis under the Insolvency and Bankruptcy Code — materially shorter than the standard route when a team wants to close cleanly and start again.
Three things that cost real money
Assuming recognition equals tax holiday. DPIIT recognition and IMB approval are two separate applications. Most recognised startups never file the second — and so forfeit both the 80-IAC deduction and the ESOP deferral.
Reading recognition as permanent. It lapses automatically on breach of the age or turnover test. Benefits claimed after a silent lapse are benefits claimed without entitlement.
Treating angel tax abolition as retrospective. It is not. Rounds closed before 1 April 2025 are still assessable under the old law and still need Rule 11UA valuation support on file.
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05  What To Do This Quarter
01  Re-test eligibility against the ₹200 crore ceiling. Now If recognition lapsed on the old limit, or was never applied for because the company looked too large, the position has changed.
02  Check whether Deep Tech classification applies. Now Ten additional years of eligibility, on evidence of R&D intensity and IP creation.
03  File the IMB application, even at a loss. This quarter It gates both the tax holiday and the ESOP deferral, and approval takes months.
04  Model 80-IAC against 115BAA before electing. Before ITR The election is irrevocable and forecloses the deduction.
05  Choose the three holiday years deliberately. Planning The deduction is worthless in loss years. Map it to the first sustained profitable stretch inside the ten-year window.
06  Complete self-certification on Shram Suvidha. Now The five-year window is running down whether or not it is used.
07  Review Section 79 before the next round closes. Pre-round A shareholding change can extinguish carried-forward losses.
08  Close out legacy angel tax exposure. Ongoing Pre-April 2025 premium remains assessable; valuation files should be complete and defensible.
Where To Start, Depending On Where You Sit
Startup promoters
Get recognition and the IMB certificate in that order, then pick the funding pool that matches your stage. Do not let the five-year self-certification window burn down unused.
SME & business owners
Test the age and turnover criteria before assuming you are outside them — the ₹200 crore ceiling brings a large band of profitable mid-size companies back into scope. CGSS also offers collateral-free debt worth comparing against your existing lines.
Chartered accountants
The recurring client exposures are a lapsed recognition still being relied on, a 115BAA election made without modelling 80-IAC, and pre-April 2025 share premium left without valuation support.
Account Assure · Compliance · Advisory · Assurance
This note summarises the position under the Income-tax Act, 1961 and DPIIT Gazette Notification G.S.R. 108(E) dated 4 February 2026, as understood for FY 2025-26 / AY 2026-27. Scheme parameters, thresholds and application windows are revised periodically and should be verified against the notification in force on the date of reliance. Issued for general information only. It is not tax, legal or investment advice and should not be acted upon without a review of the specific facts of your entity. For a benefit-mapping review of your startup, please contact your engagement partner.
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