Regulatory Hotline: DPIIT’s New Startup Framework: Deep Tech Startup Recognition and Key Reforms

DPIIT’s New Startup Framework: Deep Tech Startup Recognition and Key Reforms

• DPIIT has issued a landmark notification on February 6, 2026, replacing the 2019 framework and, for the first time, formally recognising and defining Deep Tech Startups in India.
• The new framework expands eligibility by extending deep tech recognition up to 20 years and raising the turnover ceiling to INR 300 crore (~USD 33.33 million), offering stronger support for R&D-intensive ventures.
• By formally recognising Deep Tech startups, the notification sends a strong signal to investors and global partners, encouraging greater confidence in India’s innovation-driven sectors.

Introduction

The Department for Promotion of Industry and Internal Trade (“DPIIT”) has issued a Gazette Notification dated February 4, 2026¹ (“2026 Notification”), which replaces and supersedes the earlier startup notification issued on February 19, 2019² (“2019 Notification”). This is an important policy step since, for the first time, the Government has clearly introduced a separate and formal recognition for Deep Tech Startups, reflecting India’s growing focus on innovation-led sectors such as AI, advanced engineering, biotechnology and next-generation technology.

Key Reforms Introduced under the 2026 Notification

One of the most significant reforms in the 2026 Notification is the extension of the recognition period for Deep Tech entities. Under the 2019 Notification, startups were eligible for recognition only for up to 10 (ten) years from incorporation. The 2026 Notification retains this 10-year period for regular startups, however, introduces a major change for Deep Tech startups by extending their eligibility window to 20 (twenty) years. This longer runway acknowledges that Deep Tech ventures typically require extended development cycles, long gestation periods, and significant time before commercialization.

Another key improvement relates to the turnover threshold. The 2019 Notification provided that a startup could qualify only if its turnover did not exceed INR 100 crore (~USD 11.20 million) in any financial year. The 2026 Notification substantially enhances this limit by increasing the turnover ceiling to INR 200 crore (~USD 22.22 million) for regular startups and further raising it to INR 300 crore (~USD 33.33 million) for Deep Tech startups. This upward revision ensures that scaling Deep Tech companies do not lose eligibility too early, especially given their high capital and infrastructure requirements.

The 2026 Notification also introduces, for the first time, a clear definition of what constitutes a Deep Tech Startup. The 2019 Notification did not recognise any such separate category. Under the new framework, Deep Tech startups are those developing solutions based on new scientific or engineering knowledge, demonstrating high research and development (R&D) expenditure, and owning or creating significant novel intellectual property with clear commercialization plans. This is a major policy addition that formally recognises Deep Tech as a distinct and priority segment of the startup ecosystem.

The 2026 Notification further expands the scope of entities covered under the startup definition. While the 2019 Notification recognised only private limited companies, partnership firms and LLPs, the 2026 Notification now expressly includes Multi-State Cooperative Societies and State Cooperative Societies as well. This broader coverage reflects an inclusive approach and enables more forms of innovation-driven ventures to access startup benefits.

In terms of process, both the notifications continue to provide for recognition through the DPIIT online portal. However, the 2026 notification requires Deep Tech applicants to submit additional documentation and proof demonstrating that they meet the specific Deep Tech criteria. While this introduces greater scrutiny, it also brings clarity and certainty regarding eligibility expectations. While the Inter-Ministerial Board mechanism for tax-related certification under Section 80-IAC continues under the 2026 Notification similar to the 2019 Notification, the new notification allows greater flexibility in the Board’s composition with approval of the Secretary, DPIIT, thereby enabling administrative adaptability.

Similarly, while restrictions on prohibited investments (such as residential property, luxury assets and speculative investments) continue under the 2026 Notification, they are now framed as conditions applicable throughout the period of startup recognition, rather than being tied to a specific 7-year timeline under the 2019 Notification. This links compliance directly to the startup’s recognised status rather than a fixed time period.

Lastly, the 2026 Notification also introduces an additional “Relaxations and Modifications” clause, empowering the Government to relax or modify conditions for specific classes of startups. This provides useful policy flexibility, especially for emerging sectors that may require tailored support from time to time.

Practical Considerations and Foreign Investment Reforms for Indian Startups

From a practical perspective, these reforms are expected to have a strong positive impact on India’s startup ecosystem, particularly Deep Tech ventures, at a time when global focus on artificial intelligence (AI) and advanced technology is rapidly accelerating. Deep Tech startups usually require large funding, long development cycles, specialised talent, and high technical risk. Longer recognition periods, higher turnover limits, and formal Deep Tech classification can significantly boost investor confidence, encourage R&D-driven entrepreneurship, and strengthen India’s global competitiveness. This notification also encourages founders to focus more seriously on building strong intellectual property and maintaining proper R&D records. Startups aiming for Deep Tech recognition should ensure that they document their research work, track R&D expenditure, and plan early for patents and commercial deployment.

At the same time, certain practical gaps remain which may require further attention from the Government to ensure that these reforms translate into meaningful benefits on the ground. One such key area is the Foreign Exchange Management (Non-debt Instruments) Rules, 2019³ (“NDI Rules”). Although the DPIIT startup framework (i.e., both under 2019 Notification and 2026 Notification) recognises LLPs as eligible startup entities, the NDI Rules continue to recognise only startup companies and not startup LLPs for foreign investment purposes. As a result, startup LLPs remain unable to access several foreign investment benefits that are otherwise available to recognised startups. For example, Indian startups are allowed to raise foreign funds through convertible notes, which are specially designed instruments for early-stage funding. Convertible notes are initially issued as debt and may later be converted into equity or redeemed, depending on the startup’s future performance. Similarly, Foreign Venture Capital Investors (FVCIs) are permitted under Schedule VII of the NDI Rules to invest in equity or debt instruments issued by an Indian startup, regardless of sector. However, since startup LLPs are not recognised under NDI Rules, they are deprived of these advantages.

Another issue is that under the NDI Rules, convertible notes can be converted only into equity shares, and not into other equity-linked instruments such as fully and compulsorily convertible preference shares (CCPS) or fully and compulsorily convertible debentures (CCDs), even though these instruments are recognised as eligible equity instruments for FDI purposes. In practice, investors often prefer such convertible instruments because they provide better commercial protections. Restricting conversion only to equity shares reduces flexibility and makes convertible notes less attractive for startups raising foreign funds. Given that Deep Tech startups may require much larger funding and foreign technical collaboration, liberalising these areas under the NDI Rules / FDI policy is essential. Suitable amendments to the NDI Rules should therefore be considered to include startup LLPs and should allow conversion of convertible notes into any form of equity instrument, not just equity shares.

Overall, the issuance of the 2026 Notification is a timely and forward-looking step that strengthens India’s deep tech ecosystem. With clearer operational guidance, effective implementation of these reforms, and supporting measures that require immediate consideration under foreign investment rules, this new startup regime can significantly boost innovation-led startups and help India compete strongly in the global deep tech and AI-driven innovation landscape.

Chandrashekar K
You can direct your queries or comments to the author.

¹https://www.dpiit.gov.in/static/uploads/2026/02/119e52e2a36f652215a32c3ccc5f9c66.pdf

²https://www.startupindia.gov.in/content/dam/invest-india/Templates/public/198117.pdf

³https://thc.nic.in/Central%20Governmental%20Rules/Foreign%20Exchange%20Management%20(Non-debt%20Instruments)%20Rules,%202019.pdf