Startup — DPIIT, funding & tax exemptions

DPIIT recognition is the entry ticket — it's a self-declaration process on startupindia.gov.in with a short product write-up, revenue potential, IP status and incorporation certificate. Recognition is usually granted in 5–15 working days and unlocks angel-tax exemption (56(2)(viib)), 9 labour law self-certifications, fast-track patent examination and access to government tenders reserved for startups.

80-IAC is separate and needs an Inter-Ministerial Board (IMB) certificate. Only recognised startups qualify. If granted, the startup can claim 100% deduction of business profits for any 3 consecutive assessment years out of its first 10 years — most founders time this for years 4-6 when revenue kicks in. Applications go through startupindia.gov.in → IMB approval takes 3-6 months.

ESOPs (Employee Stock Option Plans) are governed by Section 62(1)(b) of the Companies Act and Rule 12 of Companies (Share Capital and Debentures) Rules, 2014. A shareholder resolution creates an ESOP pool (typically 10-15% of fully diluted capital), grants are made per an ESOP scheme, options vest over 3-4 years (usually with a 1-year cliff), and employees exercise by paying the strike price.

Tax hits at two points — at exercise (fair market value minus exercise price is taxed as perquisite salary income, with TDS by the employer), and at sale (difference between sale price and FMV at exercise is capital gain, LTCG @ 10% above ₹1L for listed / STT-paid shares, else 20% with indexation for unlisted). DPIIT-recognised startups can defer perquisite tax at exercise by up to 5 years or till sale, whichever is earliest.

The cap table is the founder's most important spreadsheet — it lists every equity holder, their share count, class of shares, ownership %, and dilution across rounds. Common categories: founder equity (usually 60-80% at seed), ESOP pool (10-15%), angel/pre-seed (5-15%), seed (10-20%), Series A onwards. Keep it clean from day one; every messy issuance haunts every future round.

SAFEs and CCPS (Compulsorily Convertible Preference Shares) are how early rounds happen in India. SAFEs are simpler but face RBI/FEMA scrutiny; CCPS is the FDI-compliant instrument of choice for domestic Pvt Ltds. Priced rounds require a valuation report (Rule 11UA / Merchant Banker for foreign investors under FEMA); pricing below FMV triggers Section 56(2)(viib) angel tax — DPIIT recognition removes this risk for domestic investors.