Startup advisory

What this covers

The matters that arise for an early-stage company and are handled badly if handled late: recognition by the Department for Promotion of Industry and Internal Trade, the profit-linked deduction for an eligible startup and the certification it depends on, designing an employee stock option plan and knowing when the employee is taxed, valuation for an issue of shares, and getting the company into a state where a funding round can be closed.

Statutory basis

Recognition is under the notification of the Department for Promotion of Industry and Internal Trade dated 19 February 2019, as amended, which fixes the eligible forms of entity, the period from incorporation, the turnover ceiling and the innovation or scalability requirement; both have been raised since 2016, so we confirm the current limits. Options are issued under section 62(1)(b) of the Companies Act, 2013 with Rule 12 of the Companies (Share Capital and Debentures) Rules, 2014; a preferential allotment under section 62(1)(c) with Rule 13, which requires a registered valuer's report under section 247; a private placement under section 42, reported in Form PAS-3. The startup deduction, the relaxation permitting carry-forward of loss despite a change in shareholding where the original holders continue, and the deferral of tax on the stock-option perquisite are now in the Income-tax Act, 2025, which repealed the Income-tax Act, 1961 on 1 April 2026 — formerly sections 80-IAC, 79 and 192(1C). The charge on share premium above fair market value, formerly section 56(2)(viib) and known as angel tax, was withdrawn by the Finance (No. 2) Act, 2024 from assessment year 2025-26.

Who it applies to

A private limited company, registered partnership firm or limited liability partnership within the period from incorporation the notification allows. Founders about to raise a first external round, or to issue options to early employees. A company that has taken money on a convertible instrument and needs its filings brought in line with what was agreed.

What we do

1. 1Test eligibility against the notification as it stands and prepare the application on what the business actually does, since a thin description is the usual reason for rejection; and where the deduction is the objective, treat the Inter-Ministerial Board certificate as a separate application, because recognition alone does not carry it.
2. 2Fix the capital structure before the round — authorised capital, founder vesting, the option pool and who bears its dilution, and whether a convertible already issued is an equity instrument or a borrowing, which the exchange control rules decide by whether conversion is compulsory.
3. 3Design the option plan to the question that matters to an employee: grant documents, vesting and exercise conditions, exercise price, and the point of taxation — the perquisite arises on exercise, not on sale, and an eligible startup may defer the deposit of that tax.
4. 4Obtain the right valuation for the right purpose: a preferential allotment needs a registered valuer's report, an issue to a non-resident follows the pricing rules under FEMA, 1999, and fair market value for tax purposes follows the Income-tax Rules, 2026.
5. 5Get the company into a state a diligence can be run against — registers and minutes complete, cap table reconciled to the register of members, filings current, and intellectual property assigned to the company rather than held personally.
6. 6Close the round: resolutions, the return of allotment in Form PAS-3, registers and cap table updated, and Form FC-GPR where the investor is non-resident.

What you receive

Recognition

The application filed with the business description that supports it, and the certificate on grant.

Deduction assessment

A written view on whether the deduction is worth pursuing on your numbers.

Option plan

Plan document, grant letters, resolutions, and the tax note for employees.

Valuation

The report required for the purpose, from a person competent to give it.

Round file

Resolutions, allotment return, updated cap table, and the exchange control reporting.

Documents and information required

Certificate of incorporation, memorandum and articles · description of the product and the problem it addresses · deck and any patent or trade mark application · audited accounts and the current trial balance · cap table with every instrument issued, including convertibles and options · shareholders' and subscription agreements and term sheet · registers, minutes and share certificates · employment agreements with intellectual property assignment · earlier valuation reports.

Key dates

Recognition can be applied for at any time within the period from incorporation the notification allows, and cannot be obtained once that period has run — which is the reason to deal with it early rather than when the deduction is first needed. The deduction runs for consecutive years out of the early years of operation, on the window the Act sets. On a round, Form PAS-3 is due within the period section 42 allows, and Form FC-GPR within thirty days of allotment for a non-resident investor.