DPIIT’s Revised Framework on Startups: Deep Tech Startups and Key Reforms

Introduction

On 04 February 2026, the Department for Promotion of Industry and Internal Trade (“DPIIT”) issued a notification (“2026 Notification”) (to access the notification please click here), superseding its earlier “Startup” notification dated 19 February 2019 (“2019 Notification”) (to read our FAQs on Startups in India, based on the 2019 Notification, please click here).  

The 2026 Notification inter alia has broadened the definition of “Startup”, introduced a distinct category for “Deep Tech Startups”, and incorporated specific fund utilisation and investment conditions in the recognition framework. 

In this update, we outline the key changes introduced under the 2026 Notification and share our perspectives on their implications. 

Key Changes Introduced by the 2026 Notification

1. Revised Definition of “Startup” 

1. Expanded Scope of the Definition

While the 2019 Notification recognised only private limited companies, partnership firms and limited liability partnerships (“LLPs”), as Startups, the 2026 Notification now expressly also includes the following types of entities:  

1. Multi-State Cooperative Society registered with the Central Registrar of Cooperative Societies; and 

2. Cooperative Society registered under any State or Union Territory Cooperative Societies Act.  

2. Increased Turnover Threshold

The turnover ceiling for qualifying as a Startup has been increased from INR 100 crore (~USD 11.20 million) to INR 200 crore (~USD 22.22 million). However, the ten-year recognition period from the date of incorporation or registration continues to apply.    

2. Introduction of “Deep Tech Startup” 

1. The 2026 Notification now expressly defines a ‘Deep Tech Startup’ as a ‘Startup’ that demonstrates the following attributes: 

1. Development of solutions based on new knowledge or advancements within scientific or engineering disciplines;  

2. A high proportion of expenditure on R&D relative to revenue or funding;  

3. Ownership or development of significant novel intellectual property, coupled with steps toward commercialisation; and  

4. Operation in conditions involving extended development timelines, long gestation periods, high capital requirements, and technical or scientific uncertainty.  

The 2026 Notification further provides that the registration of Deep Tech Startup shall be made in accordance with frameworks and parameters prescribed by the DPIIT and based on documents and information furnished by the applicant, in the manner specified by the DPIIT.   

2. The 2026 Notification provides for the following additional benefits to a Deep Tech Startup:

1. An extended recognition period of up to twenty years from incorporation or registration; and  

2. A higher turnover ceiling of INR 300 crore (~USD 33.33 million). 

3. Conduct for Startups: 

1. Fund Utilisation and Investment Conditions

The 2026 Notification specifies the following express conditions for Startups, including Deep Tech Startup, to deploy its funds:   

1. Fund Utilisation Requirement  

2. Core business activities;  

3. Innovation and research;  

4. Scaling operations; and  

5. Operational requirements.  

2. Prohibited Investments

While the 2026 Notification continues to prohibit ‘Startups’ to invest in certain categories such as residential property, luxury assets and speculative investments, etc. (except in course of their ordinary business), these conditions are now applicable throughout the period of their recognition i.e., 10 years, as compared to the 7-year timeline given under the 2019 Notification.  

4. Tax Related Changes  

1. Section 80-IAC Certification

The 2026 Notification retains the framework under Section 80-IAC of the Income Tax Act, 1961 (“IT Act”) which provides a tax exemption to ‘Startups’. The certification under Section 80-IAC of the IT Act continues to be available only to Startups incorporated as private limited companies or LLPs that satisfy the conditions prescribed under the explanation to Section 80-IAC of the IT Act. The applications for the certification are to be made online, on the DPIIT portal, and the competent Board may accept or reject such certification upon review of the relevant documentation.  

However, the composition and strength of the Board can now be amended, with the approval of Secretary, DPIIT.  

2. Angel Tax Exemptions

As the ‘Angel Tax’ as envisaged under Section 56 (2) (viib) of the IT Act has been abolished with effect from 01 April 2025, the 2026 Notification removes the references to the said section, as provided earlier in the 2019 Notification.  

Our Thoughts 

The 2026 Notification marks a significant step in the Government’s effort to advance India’s startup ecosystem. By doubling the turnover threshold to INR 200 crore and including cooperative societies within the ambit of ‘Startups’, the framework has significantly liberalised the startup ecosystem.  

The introduction of the Deep Tech Startup category clearly signals support for R&D-intensive, IP-driven businesses that require longer time horizons and higher capital. Granting these entities a 20-year recognition window and a higher INR 300 crore reflects a clear acknowledgment of the unique challenges inherent in scientific innovation. 

Notably, recognition of entities as ‘Startups’ is now no longer a label that unlocks certain benefits. The new fund utilisation and investment conditions indicate that startups will be expected to deploy capital in line with their stated business objectives throughout the recognition period. For founders, this means that compliance, governance, and disciplined financial planning are now as critical as innovation. 

The information contained in this document is not legal advice or legal opinion. The contents recorded in the said document are for informational purposes only and should not be used for commercial purposes. Acuity Law LLP disclaims all liability to any person for any loss or damage caused by errors or omissions, whether arising from negligence, accident, or any other cause.