DPIIT explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
"Start-up" isn't a category in the Companies Act.
It's a recognition granted by DPIIT under the Startup India framework, which the Companies Act then borrows for a handful of targeted relaxations.
They're narrow, but two of them are genuinely valuable — and every one depends on holding a valid DPIIT recognition certificate. Describing yourself as a start-up in a pitch deck confers exactly nothing.
Four company law relaxations: ESOPs to promoters and 10%+ directors, deposits from members without the circular and reserve, convertible notes excluded from "deposit", and half penalties under Section 446B even after you outgrow small-company status. The ten-year clock runs from incorporation, not from recognition.
Who qualifies for recognition
- Incorporated as a private limited company, registered partnership firm or LLP;
- up to ten years from incorporation or registration;
- turnover has never exceeded ₹100 crore in any financial year since incorporation;
- working towards innovation, development or improvement of products, processes or services, or a scalable business model with high potential for employment generation or wealth creation; and
- not formed by splitting up or reconstructing an existing business.
You apply on the Startup India portal and the certificate carries a DPIIT Recognition Number. Recognition ends at the tenth anniversary of incorporation, or when turnover crosses ₹100 crore — whichever comes first.
Relaxation 1 — ESOPs to founders
The default rule excludes from ESOP eligibility any employee who is a promoter or in the promoter group, and any director holding more than 10% of outstanding equity, directly or through relatives or a body corporate.
The relaxation: neither exclusion applies to a start-up company for ten years from incorporation.
Why this matters more than it sounds. In a founder-led company, the founders are the promoters and typically hold well over 10%. Without the relaxation they cannot receive options at all — which is a real problem where a founder has taken a below-market salary and the Board wants to compensate them with equity that vests over time rather than an outright allotment now.
The relaxation started at five years and was extended to ten. Verify the current period and how much runway your company has left before designing a scheme around it — the grant has to happen while recognition is valid. ESOP mechanics →
Relaxation 2 — Deposits from members
The default rule makes a company accepting member deposits issue a circular, file it with the ROC thirty days in advance, maintain a 20% deposit repayment reserve, and provide security where secured.
The relaxation: clauses (a) to (e) of Section 73(2) don't apply to a private company that is a start-up, for ten years from incorporation.
You still file the details with the Registrar — meaning DPT-3 by 30 June — but you're free of the circular, the reserve and the security machinery.
Worth knowing: this sits alongside two other routes in the same notification that an ordinary private company may qualify for anyway — the 100% of capital plus reserves route, and the no-associate/subsidiary + borrowings under the lower of 2× capital and ₹50 crore + no default route. So check whether you need the start-up limb at all. Deposits from members →
Relaxation 3 — Convertible notes
The default rule: money received that isn't covered by a Rule 2(1)(c) exclusion is a deposit, with all the Section 73 and Section 76A consequences attached.
The relaxation: an amount of ₹25 lakh or more received by a start-up by way of a convertible note, convertible into equity or repayable within ten years, in a single tranche from a person, is excluded from "deposit".
A convertible note is the standard bridge instrument — money in now, priced at the next round. Without this exclusion it would be a deposit and simply unusable by a private company.
Read the conditions carefully. It has to be ₹25 lakh or more, in a single tranche, from a single person, with conversion or repayment within ten years. A ₹10 lakh note doesn't qualify — and neither does ₹25 lakh assembled from two people or across two tranches.
That's a genuinely common mistake, and the consequence isn't a technical foot-fault. It's a deposit accepted outside Chapter V.
Relaxation 4 — Half penalties, even after you outgrow "small"
A start-up that's also a small company gets all the small-company reliefs — two Board meetings, MGT-7A, no cash flow statement, the abridged Board's Report.
But here's the point most people miss. Section 446B expressly names a "start-up company" alongside OPCs, small companies and Producer Companies.
So the half-penalty relief is available to a recognised start-up even after it stops being a small company — a funded start-up whose paid-up capital has crossed ₹4 crore still gets the reduction, capped at ₹2,00,000 for the company and ₹1,00,000 for an officer.
That's worth knowing at exactly the moment a company is growing fastest and its compliance is most likely to slip.
The annual return may also be signed by the CS, or by a director where there is none — the same relaxation small companies and OPCs get.
The benefits outside the Companies Act
Clients always ask about these in the same breath, so:
| Benefit | Source |
|---|---|
| Income tax holiday — 100% deduction of profits for 3 consecutive years out of the first 10 | Section 80-IAC, subject to Inter-Ministerial Board certification |
| Angel tax relief — exemption from Section 56(2)(viib) on share premium | CBDT notification, on filing the prescribed declaration |
| ESOP perquisite tax deferment | Section 192(1C) |
| Carry-forward of losses despite a change in shareholding | Section 79(1)(b), where all original shareholders continue |
| Self-certification under labour and environment laws | Startup India framework |
| Public procurement relaxations | No prior turnover or experience criteria in government tenders |
| Fast-tracked patent and trade mark examination, 80% rebate on patent fees | IPR facilitation scheme |
| Fast-track winding up | Section 59 IBC voluntary liquidation |
Note that 80-IAC needs a separate Inter-Ministerial Board certificate — DPIIT recognition alone doesn't get you the tax holiday.
What start-up recognition does not give you
Worth stating plainly, because it's routinely assumed:
- No exemption from statutory audit. Section 139 applies from year one.
- No exemption from AOC-4, MGT-7/7A, DIR-3 KYC, DPT-3 or MSME-1.
- No exemption from Rule 9B demat once you cease to be a small company. Recognition is irrelevant to that trigger.
- No exemption from Section 186 limits on loans and investments.
- No exemption from Section 188 related-party approvals beyond what every private company gets.
- No exemption from CSR once the Section 135 thresholds are crossed.
- No relief from the Section 42 private placement procedure.
Checklist for a recognised start-up
- DPIIT certificate obtained and current — put the ten-year expiry from incorporation in the compliance calendar.
- Confirm turnover has never exceeded ₹100 crore in any year since incorporation.
- For an ESOP to promoters or 10%+ directors, confirm recognition is valid on the date of grant.
- For a convertible note, confirm ₹25 lakh or more, single tranche, one person, and a conversion or repayment term within ten years.
- For member deposits, document the reliance on the start-up limb in the Board minutes — and file DPT-3 by 30 June regardless.
- Confirm no default under Section 92 or 137. Every relaxation in the notification is conditional on it.
- Track small-company status separately. Rule 9B is triggered by ceasing to be small, and start-up status doesn't help.
- For Section 80-IAC, get the separate Inter-Ministerial Board certificate.
Key takeaways
- Recognition is the gate. No certificate, no relaxation.
- The ten-year clock runs from incorporation, not from recognition.
- ESOPs to founders are the headline benefit for a founder-led company.
- Convertible notes need ₹25 lakh, one tranche, one person.
- Section 446B relief survives outgrowing small-company status.
- Rule 9B demat is not relaxed at all. Track it separately.
- 80-IAC needs its own IMB certificate.
Read next
- ESOP in a Private Limited Company
- Accepting Deposits from Members: Sections 73–76A
- Small Company: Definition, Thresholds and Benefits
- Section 446B: Lesser Penalties for Small Companies and OPCs
- Exemptions and Carve-Outs for Private Companies
Disclaimer: DPIIT criteria and the relaxation periods have been amended repeatedly. Positions stated as on 4 September 2026 — verify the current DPIIT notification and the current text of the Rules before relying on any relaxation.