Startup India 2026: Recognition, Tax Benefits and Funding

Who counts as a startup in 2026

DPIIT replaced the 2019 definition with a new notification on 4 February 2026 ². Private limited companies, LLPs, registered partnerships and cooperative societies can be recognised ². The new framework adds a separate deep-tech category, judged on new science or engineering knowledge, high R&D spending, significant new IP and real technical uncertainty; startups recognised earlier do not need to re-apply ³.

What recognition unlocks

More than 2.23 lakh startups were recognised by 31 March 2026, including more than 55,200 in 2025-26 alone, the most in any year ⁵. About 48% have at least one woman director or partner ⁵.

• Patents: applications are fast-tracked, with an 80% rebate on patent filing fees and 50% on trademark fees ⁴.
• Government tenders: exemption from prior turnover, prior experience and earnest money deposit requirements ⁴.
• Closure: startups can wind up within 90 days, against 180 days for other companies ⁴.
• Self-certification under labour and environment laws for three to five years ⁴. This benefit was framed under the old labour laws, so check how it applies now that the labour codes are in force.
• Eligibility to apply for the tax holiday and for most of the schemes below.

Tax: the holiday, angel tax and ESOPs

Under section 140 of the Income-tax Act, 2025 (formerly section 80-IAC), an eligible startup can claim a full deduction of its profits for any three consecutive years out of its first ten ⁷⁶. It must be a company or LLP incorporated on or after 1 April 2016 and before 1 April 2030, with turnover of no more than ₹100 crore, and must hold a certificate from the Inter-Ministerial Board ⁷. More than 3,700 startups had been approved by May 2025 ⁶.

Note the gap: recognition now allows turnover of up to ₹200 crore, but the tax holiday is still limited to ₹100 crore ¹⁷. A recognised startup between the two may not qualify for the deduction.

The angel tax under section 56(2)(viib), which taxed share premiums above fair value, no longer applies from assessment year 2025-26 onwards, for all investors ⁸.

Government funding: where the money is in 2026

The Startup India Seed Fund, which supported early startups through incubators, is fully committed ⁵. The main routes now are:

Sector programmes and grants

State support

States run their own startup policies, often with seed grants, rent and patent reimbursements. In the fifth edition of the States' Startup Ranking, released on National Startup Day in January 2026, Gujarat was the best performer among larger states and Arunachal Pradesh and Goa among smaller ones; 34 states and union territories took part ²¹.

The funding market

Private funding remains selective. Indian startups raised about $11 billion across 936+ deals in 2025, down about 8% on 2024, according to Inc42 ²²; Tracxn put the year at $10.5 billion ²⁵. In the first half of 2026 they raised $5.2 billion across 501 deals ²⁴, and in July to September $2.2 billion, up 5% on a year earlier but across 13% fewer deals ²³. India had nearly 125 unicorns at the 10-year mark of Startup India in January 2026 ²¹.

Different trackers count deals differently, so compare figures from the same source.

What this means for hiring

Our view, from hiring for funded startups:

• Recognition and the tax holiday affect cash runway, which in turn sets how much fixed pay you can offer. Plan both before your first senior hires.
• ESOPs carry real weight in startup offers, and employees of eligible startups can defer the tax on them ²⁶. Explain the vesting and tax position clearly in the offer.
• With funding concentrated in fewer, larger rounds, candidates ask about runway. Be ready to answer it.