1. Key changes in the Startup definition

The revised definition introduces several important changes:

1. Increased Turnover Cap-Under the updated framework, a company can now be recognized as a startup if it has an annual turnover of up to ₹200 crore, compared with the earlier limit of ₹100 crore. This change effectively doubles the maximum revenue threshold, allowing larger and more mature enterprises to remain eligible for startup benefits.

2. Extended Recognition for Deep Tech Startups-The government now recognizes “deep tech startups” firms that focus on long-term research and development with breakthrough technologies. These deep tech firms may be recognised for up to 20 years and with a higher turnover limit of ₹300 crore, reflecting the longer gestation periods typical in research-intensive fields.

3. Inclusion of Cooperative Societies-A notable change is the inclusion of cooperative societies in the definition of eligible startups, which were previously excluded from these benefits. This opens the door for innovative cooperative models especially in agriculture, rural development, and community-based enterprises to access the startup ecosystem.

4. Focus on Innovation and Scalability-Even with these expanded criteria, entities must demonstrate innovation in products, services, processes, or scalable business models. Benefits remain tied to the ability to generate employment, wealth, or knowledge creation at scale, ensuring the term “startup” remains meaningful.

2. Tax incentives for Startups duration and current framework

One of the most valuable advantages of DPIIT-recognised startup status in India is the tax incentive framework under the Income Tax Act, particularly Section 80-IAC. Eligible startups can claim a 100% deduction of taxable profits for any three consecutive financial years within the first ten years from incorporation. Once profitable, a recognised startup can therefore operate without paying income tax for three years, improving cash flow and enabling reinvestment into innovation, hiring, technology, and expansion.

The eligibility window for this tax holiday has been extended to startups incorporated up to March 31, 2030. Earlier cut-offs were set to expire sooner, but recent policy changes have widened access for newer ventures, including those established after 2025. This extension signals sustained governmental support for entrepreneurship and becomes especially relevant as more innovative MSMEs qualify under the expanded startup definition.

Beyond Section 80-IAC, recognised startups also receive relief from angel tax under Section 56(2) (viib) when raising equity at a premium. Investments above fair market value are not taxed, easing early-stage fundraising. Recent reforms have further liberalised this provision, improving investor confidence across domestic and international funding sources.

Additional tax provisions, such as capital gains exemptions when proceeds are invested in specified funds and benefits under sections like 54EE for long-term gains, can further reduce overall tax exposure for innovation-driven enterprises. Together, these measures do more than defer taxes. They release critical capital during formative growth years, supporting research, market expansion, and scalability, making the startup framework highly advantageous for emerging, innovation-led Indian MSMEs

3. MSMEs and Startups: Different paths, Shared goals

Before exploring how the new definition can benefit MSMEs, it’s essential to understand their relationship. An MSME is defined using investment and turnover criteria. These were last updated in 2025 to raise the investment and turnover ceilings for micro, small, and medium enterprises enabling them to scale without losing eligibility for MSME benefits such as priority sector lending, subsidies, and government support. A startup, on the other hand, must be recognized by DPIIT under the Startup India scheme, usually involving innovation, scalability, and other qualitative factors. While the two classifications serve different purposes, they can overlap: a business can be both an MSME and a DPIIT-recognized startup if it meets criteria for both frameworks. This overlap is where the recent startup definition reform becomes particularly beneficial for MSMEs.

4. How the revised Startup definition benefits MSMEs

1. Access to Broader Government Support-MSMEs have long been eligible for government support under schemes like credit guarantees, Udyam Registration incentives, and priority sector lending. However, DPIIT recognition as a startup adds another layer of support such as startup-specific tax incentives, faster compliance procedures, and access to innovation networks not previously available to many MSMEs. For example, startups recognized under DPIIT can Self-certify compliance under select labour and environmental laws, gain exemptions from certain tender requirements, access innovation contests and challenges and seek fast-tracking of intellectual property filings. These benefits can help MSMEs adopt more formalized, tech-enabled operations and improve competitiveness.

2. Better Access to Funding and Investors-Startups are widely supported by venture capital, angel investors, institutional funds, and government-backed equity funds ecosystems that traditional MSMEs often find hard to access. With a higher turnover cap, larger MSMEs with strong innovation potential can now qualify as startups and become more attractive to investment networks that previously might not have considered them. This access can be transformative for businesses looking to scale rapidly or pivot into new markets.

3. Encouraging Innovation in Traditional Sectors-Many MSMEs operate in traditional sectors like manufacturing, food processing, and artisanal industries. Thanks to the inclusion of cooperative societies and the focus on innovation beyond just tech, these enterprises can now qualify for startup recognition if they show innovative processes, products, or scalable solutions. For example, a rural MSME cooperative using digital supply chain solutions to improve market access could now gain startup benefits alongside MSME support.

4. Enhanced Market Opportunities-Startup recognition can also help MSMEs break into new markets. DPIIT-recognized startups can be given preference in government tenders without prior experience requirements, which levels the playing field for innovative MSMEs entering public procurement markets.Access to larger government contracts can lead to higher revenue streams and greater business stability.

5. Strengthening Long-Term Competitiveness-A combined framework of MSME and startup support incentivizes enterprises to adopt digital tools, invest in research and development, and build scalable business models. This drive not only enhances internal competitiveness but also positions MSMEs to contribute to India’s broader economic goals including employment generation, export growth, and innovation leadership.

Conclusion:

India’s revised startup definition creates a strong link between the startup ecosystem and the MSME sector by increasing turnover thresholds, extending recognition timelines, and adopting a wider view of innovation. This shift opens new doors for eligible MSMEs to benefit from tax incentives, investor networks, compliance relaxations, intellectual property support, and easier access to government tenders. It also promotes formalisation, technology adoption, and innovation-led growth across traditional industries.

Despite these advantages, challenges remain. Only MSMEs that can demonstrate genuine innovation and scalability will qualify for DPIIT recognition. The process involves detailed documentation and compliance, and maximising benefits from both MSME and startup frameworks requires strategic planning and advisory guidance. With the right approach, however, MSMEs can transition from conventional enterprises into competitive, innovation-driven growth engines.