Startup Funding Rounds in India: A Founder's Compliance Checklist
Authored by - Adv. Pranay Sawant, Senior Executive at Outsource360
The wire lands on a Tuesday. Two crore rupees, cleared, sitting in the company's account. And the founder cannot legally spend a single rupee of it.
That is not a bank problem or a paperwork delay. It is section 42(6) of the Companies Act, 2013 doing exactly what it was written to do. Money raised through a private placement has to sit in a separate bank account, untouched, until two things have happened: the shares are allotted, and the return of allotment in Form PAS-3 is actually filed with the Registrar. Until the acknowledgement comes back, that account is a holding pen. Payroll cannot be run from it. The AWS bill cannot be paid from it.
Most founders discover this in week three, usually from a company secretary who assumed they already knew.
Then comes the second surprise, and it is the one that costs money. PAS-3 on a private placement is due in fifteen days, not thirty. The thirty-day figure that appears on most of page one is section 39(4), which governs rights issues, bonus shares and ESOP exercises. A round bringing in new investors runs on section 42(8), and that clock is half as long. Miss it and the penalty runs per day, on the company, its promoters and its directors personally.
Here's the thing about a funding round. It doesn't have a deadline. It has six of them, and they start at different events. Form SH-7 runs from a shareholders' resolution that has to be passed before the allotment happens at all. Form FC-GPR runs from the date of allotment, not the date the money arrived, which for a round that closes in tranches can be weeks apart. Form FC-TRS, which applies when a founder sells existing shares into the round, runs from the earlier of the transfer or the consideration. Line those up wrong and a filing is already late on the day the round closes.
Six things also moved underneath the published checklists, and four of them moved in 2026. The Income-tax Act, 2025 came into force on 1 April 2026 and renumbered every section, which means the tax advice on every competing page now cites a repealed statute. Angel tax stopped applying from assessment year 2025-26, and the government's own startup portal still hosts a guide explaining how to claim the exemption. The Finance Act, 2026 tripled the startup deduction turnover cap and halved the tax rate on unexplained credits. And mandatory dematerialisation under Rule 9B quietly became a rule that can stop a round before the term sheet is signed.
This is the round rebuilt from the sections rather than copied from the last checklist. It runs from the hygiene that decides whether you are fundable, through the term sheet and the instrument, into the mechanics of the issue itself, and out the other side into the filings that follow the allotment. Foreign money and founder secondaries are called out where they diverge.
Compliance for a funding round in India runs on clocks measured from separate trigger events, not from the closing date. Shares must be allotted within 60 days of receiving the application money, and Form PAS-3 follows within 15 days of allotment for a private placement. The money cannot be used until PAS-3 is filed. Where a foreign investor subscribes, Form FC-GPR is due within 30 days of allotment, and share certificates within two months.
That is the spine. What follows is each obligation, the section it comes from, and the order the clocks actually run in.
On this page
A funding round is not one deadline, it is six clocks
The stages, and what the Indian data will and will not tell you
Before the term sheet: what decides whether you are fundable
The term sheet, and which parts of it actually bind you
The round itself: sections 42 and 62(1)(c)
After the allotment: the filing sequence
If any of the money is foreign
The tax position, and the advice that is a statute out of date
Running a round without an in-house compliance team
A funding round is not one deadline, it is six clocks
Annual compliance calendars are built backwards from 31 March. A funding round is built forwards from a set of events that can happen in any month, and the events are not the same as the milestones a founder thinks in.
The clocks, and the event that starts each one
A founder thinks in three moments: term sheet signed, money received, round closed. The statute recognises none of them.
What the statute recognises is the passing of a shareholders' resolution, the receipt of application money, and the act of allotment. Those are the three events that start clocks, and only one of them is under the founder's direct control on a given day.
So the sequence has a fixed internal order. The special resolution comes first, because section 62(1)(c) requires it before shares can be issued to anyone who is not already a member. If the authorised capital does not cover the new shares, SH-7 has to be filed on the back of a separate resolution, and that has to be finished before the board can validly allot anything. Then the offer letter, then the money, then the allotment, then the filings.
Get that order wrong and the problem is not a late form. It is an invalid allotment, which is a considerably worse thing to explain in a data room two years later.
Why your money is frozen until one form is filed
Section 42(6) says the application money can be used for exactly two purposes: adjusting it against the allotment, or refunding it. Nothing else. And the amendment effective 7 August 2018 tied the release of that money to the filing of PAS-3 rather than to the allotment alone.
Read that as written. The company can have allotted the shares, issued the certificates and updated the register, and the cash is still legally immobile until the return of allotment reaches the Registrar.
What does that mean in practice? It means PAS-3 is not a post-closing formality that the company secretary handles next month. It is the gate between a funded company and a company that can pay its bills. We'd treat it as the single most time-critical item in the entire round, ahead of anything in the definitive documents.
There is a second consequence that rarely gets stated. If the company does not allot within sixty days of receiving the application money, it has to refund the whole amount within fifteen days of that period expiring, and interest at twelve per cent a year runs from the sixty-first day. A round that stalls in diligence for two months does not simply pause. It reverses.
What moved underneath the published checklists
Six changes, and the reason so much published advice on this subject is now actively wrong.
The Income-tax Act, 2025 replaced the Income-tax Act, 1961 on 1 April 2026 and renumbered every section. Angel tax under section 56(2)(viib) of the old Act stopped applying from assessment year 2025-26, and there is no successor provision in the new Act at all. The Finance Act, 2026 then tripled the turnover ceiling for the startup profit deduction and cut the rate on unexplained credits from sixty per cent to thirty.
On the corporate side, mandatory dematerialisation under Rule 9B now bars a non-compliant private company from issuing any securities at all, and enforcement began in earnest in August 2026. The small company thresholds moved on 1 December 2025, which changed who Rule 9B catches. And on the foreign investment side, the land-border approval regime was rewritten between March and May 2026, while the Delhi High Court in May 2025 reversed the position that Indian explainer sites still publish about whether a non-binding term sheet can become binding through conduct.
Here is the whole sequence in one place, for a priced round in a private limited company.
Step | Form or act | Clock starts on | Deadline |
Increase authorised capital, if needed | SH-7 | Passing of the shareholders' resolution | 30 days, and before allotment |
Board resolution identifying the investors | MGT-14 | Passing of the board resolution | Before PAS-4 is issued |
Special resolution authorising the issue | MGT-14 | Passing at the general meeting | 30 days |
Private placement offer letter | PAS-4 | Recording the investors' names | 30 days |
Allotment of shares | Board resolution | Receipt of application money | 60 days |
Return of allotment | PAS-3 | Date of allotment | 15 days, private placement |
Report of foreign investment | FC-GPR | Date of allotment | 30 days |
Report of a founder secondary | FC-TRS | Transfer or consideration, whichever is earlier | 60 days |
Delivery of share certificates | SH-1 | Date of allotment | 2 months |
Nine steps, five different trigger events, and not one of them keyed to the day the round closed.
The stages, and what the Indian data will and will not tell you
Before the mechanics, a short orientation, because the vocabulary is looser than most founders realise and a surprising amount of what circulates about Indian round sizes is invented.
From bootstrapping to Series C, in the government's own framework
The Startup India portal publishes a four-rung ladder, and it is the only official Indian framing of the stages: Ideation, which it labels pre-seed and where it names bootstrapping, friends and family, and competition prizes; Validation, which it labels the seed stage and where angel investors, incubators and the Startup India Seed Fund Scheme appear; Early Traction, which it labels Series A and points at venture capital funds, banks and venture debt; and Scaling, which covers Series B through E.
The government scheme money is worth knowing precisely, because it is one of the few places in this landscape where a hard rupee figure exists. Under the Startup India Seed Fund Scheme, an eligible startup can receive up to Rs 20 lakh as a grant for proof of concept, prototype development or product trials, and up to Rs 50 lakh as investment for market entry, commercialisation or scaling, through convertible debentures or debt-linked instruments.
Now, a structural point that says something about the whole market. The Bain and IVCA India Venture Capital Report for 2026 tracks seed, Series A, B, C and D-plus. It does not track an angel stage at all, and the word does not appear in the report. Nor does pre-Series A. In Indian data terms, angel is an investor type rather than a round.
The cheque sizes nobody can honestly quote you
There are two credible sources for Indian round sizes and they measure different things, so they should never be put in the same sentence.
Bain and IVCA report average deal values by stage. For 2025 those were roughly three million dollars at seed across 803 deals, eight million at Series A across 315 deals, twenty-four million at Series B across 147, and thirty-nine million at Series C across 51. Inc42, working on a different methodology and a smaller universe, reports medians instead: a one million dollar median seed ticket, holding flat across 2025 and the first half of 2026.
Both are correct. A mean sits above a median in a distribution with a long right tail, which is exactly what venture funding is. Anyone presenting the two as a contradiction has misread both.
But here is what genuinely cannot be sourced, and it matters more than the numbers that can. There is no Indian equivalent of the Cooley, Fenwick or Orrick deal-terms reports. No public dataset records what percentage of Indian rounds carry a 1x non-participating liquidation preference, or what the median Series A dilution actually is in this market. Every such figure in circulation is either a US number wearing an Indian headline, or a practitioner's impression presented as data.
So when an investor tells you a term is "market standard" in India, the honest position is that nobody can prove it either way. That asymmetry is worth understanding before you concede anything on the strength of it.
Is pre-Series A a real stage?
Real as behaviour, absent as a category. Bridge rounds between seed and Series A demonstrably happen. But no Indian dataset tracks pre-Series A, the government framework does not contain it, and SEBI does not define it.
Which is precisely why no credible cheque size or dilution figure exists for it. There is nothing to measure, because nobody agrees what is being counted.
Before the term sheet: what decides whether you are fundable
Diligence does not usually kill a round. It delays one, repeatedly, in two-day increments, until the exclusivity window has gone and the leverage has moved.
The work that prevents that is almost entirely work that should have been done in year one and was not. If your company is still in its first year, what the company owes in its first year is the list this section assumes you have already worked through.
The cap table has to tie to four separate records
A cap table in a spreadsheet is not evidence of anything. It is a summary, and diligence counsel will reconcile it against four independent records before accepting a single line of it.
Those four are the PAS-3 filings at the Registrar, the physical or dematerialised share certificates, the board and shareholder resolutions authorising each issue, and the register of members maintained under section 88. The register is the legal record of ownership. The spreadsheet is not.
When those four disagree, and they frequently do, the question stops being commercial and becomes forensic. An allotment that appears in the minute book but never reached PAS-3. A share certificate issued for a number that does not match the resolution. A transfer recorded in the spreadsheet with no SH-4 behind it.
The mistake we see most often is a company that has grown its cap table faster than its record-keeping and assumes the two can be reconciled retrospectively in a week. Sometimes they can. Often the fix requires an adjudication, and that runs on the Registrar's timetable rather than the investor's.
Rule 9B, the rule that can stop a round before it starts
This one is close to unknown and it is the most consequential item in this section.
Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014 requires every private company other than a small company and a government company to hold and issue its securities only in dematerialised form. Companies that ceased to be small after 31 March 2023 got eighteen months from the close of that financial year. Everyone else had until 30 June 2025, the original deadline having been extended by an MCA amendment of 12 February 2025.
Now the part that matters. A covered company that has not complied cannot undertake any offer for the issue of securities at all. Not a rights issue, not a bonus issue, not a buyback, not an ESOP allotment, and not your funding round. And once past the compliance date, any holder wanting to transfer securities has to dematerialise them first, which catches founder secondaries too.
Enforcement is no longer theoretical. In August 2026 the Registrar of Companies at Bangalore adjudicated against a private company that had approved a share transfer in July 2025, after the deadline, without having dematerialised. The penalty under section 450 was Rs 10,000 on the company and Rs 10,000 on each of four officers in default.
Here's where it gets interesting, and where essentially every published treatment is now out of date. Rule 9B exempts small companies, and the small company thresholds moved on 1 December 2025, from Rs 4 crore of paid-up capital and Rs 40 crore of turnover to Rs 10 crore and Rs 100 crore. That change shrank the population Rule 9B catches, and a good many startups that were inside it are now outside. But applicability is tested on the last day of a financial year against audited accounts, so a company that was non-small on 31 March 2025 still carried the obligation regardless of where it sits today.
Our recommendation is to establish your Rule 9B position before you take a term sheet, not after. It is a six to eight week process to obtain an ISIN and onboard a depository, and it is not a process you want to discover mid-round. Note also the half-yearly reconciliation in Form PAS-6, due within sixty days of the close of each half-year, which is the item companies remember to start and forget to continue. The wider set of recurring filings sits in the annual cycle those dates settle into.
IP the company does not actually own
Section 17 of the Copyright Act, 1957 sets the default: the author is the first owner. There is one carve-out that helps you and one gap that does not.
The carve-out is section 17(c). Where a work is made in the course of employment under a contract of service, the employer is the first owner, absent an agreement to the contrary. So code written by a salaried engineer belongs to the company by operation of law.
The gap is everything else. Section 17 does not reach independent contractors, freelancers or vendors. A contract designer who built your interface, a freelance developer who built the first version, an agency that wrote your marketing copy: by statute each of them retains copyright in what they made, however precisely you briefed it and however fully you paid for it.
And the two situations that catch founders hardest sit in that gap. Code a founder wrote before the company existed, when there was no employment relationship to vest anything. And an early contributor who was never on payroll, has long since moved on, and now has to be found and asked to sign something.
The cure is written assignment, signed by the assignor, and it is far cheaper to obtain from someone who still likes you. Get founder assignments executed immediately after incorporation covering pre-incorporation work, and put a written assignment clause into every contractor agreement from the first one.
What else surfaces in the data room
A short list of the things that reliably produce a second round of questions.
Statutory registers that were never opened. Minutes entered late or not at all, against the thirty-day requirement in section 118. A missing Form INC-20A, which additionally means the company had no power to borrow, so any convertible note or venture debt taken before it was filed is itself defective. Uncompounded contraventions under FEMA from an earlier angel round, which pass to the incoming investor as a live liability.
On the finance side: GST returns that do not reconcile to the audited profit and loss account, which is the single most productive check a diligence accountant runs. Related-party arrangements at non-market rates without approval under section 188. Management accounts that diverge materially from the audited statements.
Fair warning on timing. The thing that actually costs founders is not any single defect. It is adding documents to a data room reactively, one investor question at a time, over three weeks that were supposed to be one.
The term sheet, and which parts of it actually bind you
A term sheet described as non-binding is not a non-binding document. It is a partially binding one, and the parts that bind are the parts that constrain what you can do next.
The five clauses that bind inside a non-binding term sheet
In the leading Indian authority on this question the term sheet carved out exactly five provisions as binding: confidentiality, approvals, expenses, exclusivity, and governing law and arbitration.
Four of those appear on every checklist. Approvals does not, and it is worth pausing on. A binding approvals clause commits you to a process, and where it is drafted broadly it can oblige the company to pursue regulatory or shareholder consents before there is any obligation on the investor to fund. That is real work and real cost, incurred against a deal that can still evaporate.
Exclusivity is the one with a price. Indian market practice runs at thirty to forty-five days, with sixty at the outer edge, though that figure comes from advisory-firm commentary rather than any survey. A ninety-day no-shop on a company with nine months of runway is not a procedural term. It is a quarter of your remaining optionality.
What about a standstill? It appears on imported checklists and we could not find a single Indian source treating it as a standard carve-out. In Indian practice the exclusivity clause does that job.
What the Delhi High Court settled in May 2025
For years the standard Indian commentary on term sheets carried a warning drawn from a well-known dispute between two hospitality companies: that conduct after signing could turn a nominally non-binding term sheet into an enforceable agreement. An arbitral tribunal had so held.
That is no longer the position, and a great deal of published Indian content has not caught up.
On 13 May 2025 the Delhi High Court set the award aside. The reasoning is quotable and useful. If the parties had intended every provision to be binding, the court observed, they would not have included explicit provisions to the contrary. It went further: the true effect of clear and unambiguous words in a contract is not affected by the subsequent conduct of the parties, and construing a preliminary document as binding solely on the basis of conduct would be tenuous.
So as the position stands, the carve-out list means what it says. What is drafted as non-binding stays non-binding, and negotiating conduct does not silently convert it.
Two caveats before anyone relies on this. We could not establish whether the judgment has been appealed, so treat it as the current position rather than a settled one. And it cuts both ways: a founder who was relying on an investor's conduct to hold them to a term sheet has lost that argument too.
The ESOP pool, and where its dilution actually lands
Investors typically ask for a pool of ten to fifteen per cent on a fully diluted basis, sized larger at Series A than at seed. The size is negotiable. The timing is where the money is.
If the pool is created before the investment, only the existing shareholders are diluted by it, and the investor's percentage is calculated after that dilution has already happened. If it is created after, the dilution is shared with the incoming investor. Same pool, same percentage, entirely different bill.
The arithmetic is worth seeing once. On a Rs 40 crore pre-money valuation with a Rs 10 crore investment and a fifteen per cent pool, pre-money timing leaves the founders at roughly fifty-five per cent and post-money timing at roughly sixty-two. Carried to a Rs 500 crore exit, that difference is worth around Rs 35 crore.
Worth flagging that this worked example comes from advisory-firm commentary rather than a market survey, and we could not find a Tier-1 Indian source stating a market standard on pool timing either way. The mechanic is certain. The convention is not.
One more thing the fully diluted calculation catches that founders miss: unallocated options in the pool count. The reserve dilutes you whether or not anyone has been granted anything out of it.
The clauses that price differently in India
Two term-sheet provisions behave differently here than the imported templates assume, and both are FEMA problems rather than negotiating problems.
The first is anti-dilution. Broad-based weighted average is the common Indian landing point, with full ratchet functioning mostly as a stress term. But where the protected investor is a non-resident, the top-up cannot be delivered the way a US structure would deliver it. Shares cannot be issued to a non-resident free of cost or below fair market value, and the price at which a convertible instrument converts cannot fall below the fair market value determined at issuance. A full-ratchet top-up delivered as free shares is simply not available.
The second is the exit clause. Indian term sheets routinely require founders to deliver an exit by a date or buy the investor out at a price producing a guaranteed return. Against a non-resident investor that pricing is not enforceable: the guiding principle under the pricing rules is that a person resident outside India is not guaranteed any assured exit price and exits at the price prevailing at the time of exit.
Now, here is the part that makes complacency expensive. An unenforceable put option is not the same as no liability. Indian courts have enforced damages arising out of the same bargains even where the option pricing itself offended the exchange control position. The obligation does not vanish; it changes shape. So negotiate the exit clause on its merits rather than signing it on the assumption that it cannot bite.
If contract structure generally is the gap, which business contract you actually need and when covers the wider set.
Choosing the instrument
The instrument decision looks commercial and is mostly regulatory. India's exchange control rules define a closed list of things a foreign investor may hold, and that list does most of the choosing for you.
Why CCPS is the Indian default
Under the exchange control rules, the term equity instruments means equity shares, convertible debentures, preference shares and share warrants issued by an Indian company. Debentures and preference shares qualify only if they are fully and mandatorily convertible and fully paid. Anything not fully, compulsorily and mandatorily convertible is a debt instrument, and debt instruments go down the external commercial borrowing route, which is an entirely different and much less friendly regime.
That single definition is why compulsorily convertible preference shares became the standard instrument for priced Indian rounds. They give the investor a preference on liquidation and a downside structure, while counting as equity for exchange control purposes from the date of issue rather than the date of conversion.
Two consequences follow from that last point and both are easy to miss. Reporting is immediate: the FC-GPR clock runs from the allotment of the CCPS, not from its eventual conversion. And the sectoral cap is consumed immediately too.
A correction on a related point, because it circulates in comparison tables. Compulsorily convertible debentures are also equity instruments under the same definition. The debt and external borrowing treatment attaches to optionally or partially convertible instruments, not to compulsorily convertible ones.
Convertible notes: ten years, Rs 25 lakh, and a private company only
The convertible note is the closest thing India has to a genuinely unpriced instrument, and its terms are more generous than most published summaries suggest.
A person resident outside India may invest in convertible notes issued by an Indian startup company for an amount of twenty-five lakh rupees or more in a single tranche. Note the drafting: per investor, per single tranche. Smaller amounts cannot be aggregated to reach the floor.
The note may be converted into equity shares or repaid within ten years from the date of issue, at the option of the holder. Ten, not five. The five-year figure was the earlier position and it is still being published. Citizens and entities of Pakistan and Bangladesh are excluded entirely, and where the startup operates in a sector requiring government approval for foreign investment, the note itself needs that approval.
Two conditions catch people. The pricing guidelines bite at conversion as well as at issue, so the conversion cannot deliver shares below fair value at that point. And any escrow account used for the money has to be closed on completion or within six months, whichever is earlier.
There is also a threshold question worth raising honestly. The instrument is available only to a startup company, and that term is defined as a private company recognised under the relevant Department for Promotion of Industry and Internal Trade notification. Two things follow. An LLP cannot issue a convertible note to a non-resident, however impeccable its recognition, and neither can a cooperative society, which matters now that recognition has been extended to them. And the exchange control rules cross-refer to a 2019 notification "as amended from time to time", while the current recognition framework was made by a superseding notification of 4 February 2026. Whether an ambulatory reference to a notification as amended carries through to one that supersedes it is a genuine construction question, and we found no source addressing it. If you are relying on convertible notes, get your own advisor's written view.
Why a US SAFE does not work here
Founders coming out of a US accelerator arrive holding a SAFE and are surprised to be told it cannot be used. Three independent obstacles, any one of which would be fatal.
The first is exchange control. A SAFE is a contractual right to future equity. It is not a share, not a fully and mandatorily convertible debenture or preference share, and not a warrant, so it sits outside the closed list of instruments through which foreign investment may be received.
The second is company law. Section 43 of the Companies Act provides that a company's share capital is of two kinds, equity and preference. An instrument sitting outside both cannot be issued.
The third is pricing. The price or conversion formula of a convertible equity instrument has to be determined upfront at the time of issue. A SAFE's defining feature is deferred valuation, settled at the next round through a cap or a discount. A hard floor fixed at issuance is irreconcilable with that.
What Indian startups use instead is the iSAFE, which takes the legal form of compulsorily convertible preference shares rather than a bare contract. It converts automatically on the next priced round, a dissolution, a merger or an acquisition, or at the end of three years from issue, whichever comes first. Because it is CCPS, everything that applies to CCPS applies to it: a section 42 private placement with a PAS-4 offer letter, FEMA pricing compliance, and FC-GPR within thirty days of allotment. And because only a company can issue shares, an LLP or a partnership firm cannot issue one.
Instrument | Legal form in India | Valuation fixed | Available to a foreign investor? |
CCPS | Preference share capital, compulsorily convertible | Upfront, at issue | Yes. Equity instrument from the date of issue |
CCD | Debenture, compulsorily convertible | Upfront, at issue | Yes. Equity instrument, not external borrowing |
Convertible note | Debt initially, convertible within 10 years | Deferred | Yes, but only a DPIIT-recognised private company may issue, minimum Rs 25 lakh per tranche |
iSAFE | CCPS, converting within 3 years | Upfront, at issue | Yes, on the same footing as CCPS |
US-form SAFE | None. Not a recognised instrument | Deferred | No |
The round itself: sections 42 and 62(1)(c)
Two sections govern a priced round with new investors, and they operate together rather than as alternatives. Section 62(1)(c) authorises the issue. Section 42 governs how the offer is made and the money handled.
The two routes, and the exemption that does not apply to yours
Section 62(1)(a) gives existing shareholders a statutory pre-emptive right: new shares must first be offered to them in proportion to their holdings. That right exists independently of anything in a shareholders' agreement, and it is why a round bringing in outside investors has to go down a different road.
That road is section 62(1)(c), which permits an issue to any persons if it is authorised by a special resolution and the price is determined by the valuation report of a registered valuer.
Now the correction, because at least one widely used reference site has it wrong and it is the kind of error that invalidates an allotment. The MCA exemption notification of 5 June 2015 lets a private company pass an ordinary resolution instead of a special resolution under section 62(1)(b), which is the ESOP provision. It does not extend to section 62(1)(c). A private company running a preferential allotment still needs a special resolution, at a properly convened general meeting, with three-quarters support.
There is a condition on those private-company exemptions generally that is worth knowing. They are available only to a private company that has not defaulted in its filings under sections 92 or 137. So a company sitting on unfiled annual returns has quietly lost its exemptions, including the ESOP one, which means an ESOP scheme passed by ordinary resolution during a default period has a problem nobody was looking for.
The offer letter, the separate account and the sixty-day clock
Section 42 is the procedural spine, and it is unforgiving in a specific way: several of its requirements are conditions of validity rather than compliance items with penalties attached.
The offer goes to identified persons, named in a board resolution, through a private placement offer letter in Form PAS-4 issued within thirty days of recording their names. The letter has to be serially numbered and personally addressed, and sent only by registered post, speed post or electronic means. Reusing an old offer letter for a new investor is not a shortcut; it is a defect.
The offer can go to no more than two hundred persons per kind of security in a financial year. Qualified institutional buyers and employees receiving securities under an ESOP scheme do not count towards that cap.
Money comes in through banking channels only, into a dedicated separate bank account, with no entries in it other than the receipt of application money and, once PAS-3 is filed, the transfer out. No cash, at any amount.
Then the clocks. Allotment within sixty days of receiving the money. If that fails, refund in full within fifteen days, and twelve per cent interest from the sixty-first day.
So what happens if the two hundred limit is breached, or the offer is advertised publicly, or PAS-4 goes out before the board resolution is filed? The entire issue is treated as a deemed public offer, which pulls in the securities regulations and the Securities Contracts (Regulation) Act, and the penalty is the higher of the amount raised or Rs 2 crore. That is the provision that turns a procedural slip into an existential one.
The valuation, and why you may need more than one
This is where a great deal of published content collapses three separate obligations into one, and gets all three wrong in the process.
Under company law, a preferential allotment under section 62(1)(c) requires a valuation report from a registered valuer, and for an unlisted company that means a valuer registered with the Insolvency and Bankruptcy Board of India. That requirement is unaffected by anything that has happened in tax law.
Under exchange control, where a non-resident subscribes, the price cannot be less than a valuation carried out under any internationally accepted pricing methodology on an arm's length basis, certified by a chartered accountant, a SEBI-registered merchant banker or a practising cost accountant. Three categories, and advice that says only a merchant banker will do is too narrow.
Under income tax, the position has genuinely changed. The merchant-banker discounted cash flow valuation that Indian founders came to think of as compulsory existed to serve the angel tax provision. That provision no longer applies and has no successor, so the income tax trigger for that particular valuation on a fresh issue of shares has gone. A prescribed methodology still matters for transfers and for receipts below fair value, but not for pricing a primary issue.
The practical upshot: on a purely domestic round you need the registered valuer report. Where foreign money comes in, you need the exchange control valuation as well, and the eligible-valuer lists are not identical. Anyone telling you that you still need an angel tax valuation for your round is working from a 2023 checklist.
One caveat we will not paper over. Whether the two reports can be combined into a single instrument prepared by a professional qualified under both regimes is a practical question we could not settle from source. Ask your own advisor rather than assuming.
Authorised capital first, then allotment
A small sequencing item that produces a disproportionate number of invalid allotments.
A company can only issue shares within its authorised share capital. If the round takes the issued capital past that ceiling, the authorised capital has to be increased first, by a shareholders' resolution and an amendment to the memorandum, with Form SH-7 filed within thirty days of that resolution.
The word doing the work is "first". The increase has to be complete before the board meets to allot. A board that allots shares beyond the authorised capital has not made a defective allotment; it has made one the company had no capacity to make.
Worth flagging that SH-7 is absent from almost every competing checklist we reviewed. It is not an obscure form. It is simply one that gets forgotten because it sits before the part of the process everybody thinks of as the round.
After the allotment: the filing sequence
The allotment resolution is the pivot. Before it, everything is authorisation. After it, four clocks run simultaneously and the money is still frozen.
PAS-3 in fifteen days, not thirty
The return of allotment in Form PAS-3 is due within fifteen days of the allotment where the shares were issued through a private placement under section 42(8). That is the route a round with new investors takes.
The thirty-day figure comes from section 39(4), read with rule 12, and it governs everything else: rights issues, bonus shares, ESOP exercises, conversions, and preferential allotments made only to existing members. Both numbers are correct. They apply to different things, and a good deal of published advice attaches the wrong one to a funding round.
Fifteen days is tighter than it sounds, because the form needs the complete list of allottees with their details, the board resolution, the valuation report and the offer letter, and it typically needs professional certification. Starting it after the allotment rather than assembling it before is how companies lose the first week.
And the money is still frozen throughout. That is the whole point of this section: the fifteen-day clock is not a compliance deadline, it is the length of time your funded company spends unable to spend.
MGT-14, SH-7 and the share certificates
Three more items, on three more clocks.
Form MGT-14 carries the special resolution to the Registrar within thirty days of the general meeting. Note there is a second MGT-14 earlier in the sequence, for the board resolution identifying the investors and approving the offer, and that one has to be filed before PAS-4 goes out. Getting them the wrong way round is one of the deemed-public-offer triggers.
Form SH-7 follows the authorised capital resolution by thirty days, as covered above.
Share certificates are due within two months of the date of allotment under section 56(4)(b), signed by two directors or a director and the company secretary, and stamped under the relevant state's stamp law. Read the sub-clause carefully, because it is a different limb from the one that applies at incorporation: section 56(4)(a) gives two months from incorporation for subscribers to the memorandum, which is the version covered in our first-year checklist. Here the clock runs from allotment.
Where the company is inside Rule 9B, of course, there is no physical certificate at all and the securities are credited in dematerialised form instead.
What a late filing costs
Two mechanisms, and they operate independently.
For PAS-3 on a private placement, section 42(9) attaches a penalty that accrues per day of default, and it attaches to the company, its promoters and its directors. The personal limb is the part worth internalising: this is not a company expense that gets absorbed. On the quantum, published sources genuinely conflict, giving different per-day rates and different caps, so we are not going to print a figure we cannot stand behind. Ask your advisor for the current text before relying on any number you read, here or elsewhere.
The larger cost is not the penalty. It is that the money stays frozen, and a company that planned its runway from the closing date is now paying salaries out of whatever it had before the round.
Then the consequences that outlast the money. An allotment made outside the authorised capital, or a private placement that tipped into a deemed public offer, is not cured by paying a fee. It sits in the corporate record, and the next investor's counsel finds it. Directors who preside over three continuous financial years without annual filings are disqualified for five years under section 164(2), and not just in the defaulting company but in every company they sit on the board of.
If any of the money is foreign
Foreign investment adds a second, parallel reporting track that runs on its own clocks and its own portal. It does not replace anything in the previous section. It sits alongside it.
For a foreign parent setting up and funding an Indian subsidiary from scratch, the fuller treatment is in our guide to company registration in India for foreign founders. What follows is the round-specific view.
FC-GPR runs from allotment, not from the money landing
Form FC-GPR reports the fresh issue of capital instruments to a person resident outside India, and it is due within thirty days of the date of allotment.
Not thirty days from the remittance. From the allotment. Those are different dates, and on a round that closes in tranches or waits on a condition precedent they can be weeks apart. Companies that diarise the wire date file late; companies that diarise the board resolution file on time.
The Indian company files it, on the FIRMS portal, through its authorised dealer bank, which verifies and approves. The core attachments are a company secretary's certificate in the prescribed format, the valuation certificate, the foreign inward remittance certificate from the bank, and a KYC report on the investor from the investor's own bank.
The practical trap is the bank's turnaround. The company does not file directly to the regulator; it files through an intermediary that has its own queue. Submitting on day twenty-eight is not filing on day twenty-eight.
The Entity Master Form that gates everything downstream
Before any of that can happen, the company has to be registered on the FIRMS portal through the Entity Master Form, a one-time registration capturing the company's identifiers, sector code and existing foreign investment on a fully diluted basis.
The Single Master Form, which is where FC-GPR lives, cannot be opened until the Entity Master Form is approved. And there is a second step people miss: the entity user registration used to file the master form cannot itself file the reporting forms. A separate business user account has to be created and linked.
There is no fee for any of it. There is just a sequence, and a company discovering it on day twenty-five of a thirty-day window has a problem that money cannot solve.
Press Note 3 was not abolished
The land-border regime introduced in April 2020 was rewritten in 2026, following a Cabinet decision of 10 March 2026 and an amendment to the exchange control rules notified on 1 May 2026. A good deal of coverage described this as a relaxation and then collapsed two quite different tests into one.
The distinction that matters: a direct investment by an entity of, or a citizen of, a land-border country requires government approval at any size, with no de-minimis at all. The ten per cent threshold that appears in the coverage applies only to the beneficial-owner test for an investor entity incorporated outside those countries. So a fund in Delaware or Singapore whose land-border-linked investors hold ten per cent or less, without control, can come in through the automatic route.
But it still has to be reported, and the reporting duty has no percentage floor whatsoever. A fund with a half-per-cent investor from a covered country escapes the approval requirement and does not escape the disclosure.
One honest gap: whether a Hong Kong-incorporated investor falls within scope is genuinely disputed between reputable firms, and we could not resolve it. Treat a Hong Kong vehicle as within scope pending advice, not least because the beneficial-owner limb will usually catch it anyway.
The late fee, and the error that overstates it twelvefold
Late reporting under the exchange control rules is regularised through a late submission fee rather than immediate penal action, and the formula is widely misquoted.
For the transactional forms, including FC-GPR, FC-TRS and Form CN, the fee is Rs 7,500 plus 0.025 per cent of the amount involved multiplied by the period of delay. That period is measured in years, rounded up to the nearest month and expressed to two decimal places. Several live sources state it as a monthly figure, which overstates the fee by roughly a factor of twelve.
The arithmetic on a real case: a Rs 5 crore round reported six months late gives a delay factor of 0.50, so the variable component is 0.025 per cent of Rs 5 crore multiplied by 0.50, which is Rs 6,250. Total Rs 13,750. On the erroneous monthly reading it would be around Rs 82,500.
Two boundaries. The fee is capped at one hundred per cent of the amount involved. And it is available for up to three years from the due date, after which the contravention has to go through compounding instead, which is a formal application with a fee and a hearing.
The annual return on foreign liabilities and assets sits in a different category, at a flat Rs 7,500. Worth correcting one widespread piece of advice there: the test for whether you have to file is whether there is foreign investment outstanding at the end of March, not whether you ever received any. A company with foreign shareholders on its cap table files every year regardless of fresh inflow. A company whose foreign investment has been fully bought out, leaving nothing outstanding at both March dates, does not.
A founder secondary runs on a different form and a different clock
Rounds frequently carry a secondary component, with a founder selling existing shares alongside the primary issue. That is a transfer, not an issue, and it reports differently.
Form FC-TRS covers the transfer of existing capital instruments between a resident and a non-resident, in either direction, and it is due within sixty days of the transfer or of the receipt of consideration, whichever is earlier. The "whichever is earlier" limb is routinely dropped in summaries that give only sixty days from transfer.
So a round with both components generates two filings on two clocks: FC-GPR at thirty days from allotment, FC-TRS at sixty days from the earlier of transfer or consideration. They will not fall on the same day.
And the obligation sits differently. FC-TRS is the resident party's responsibility, which on a founder secondary means the founder personally rather than the company. In practice the company usually files it, but the liability does not move because of that convenience. Pricing runs the other way too: on a transfer from a resident to a non-resident the price cannot be below fair value, and on a transfer the other way it cannot be above.
The tax position, and the advice that is a statute out of date
More stale advice attaches to this section than to any other part of a funding round, for a straightforward reason: two separate things changed, eighteen months apart, and most published content has absorbed neither.
Angel tax is gone, and the exemption route is obsolete
Section 56(2)(viib) of the Income-tax Act, 1961 taxed a closely held company on share premium received above fair market value. It stopped applying from assessment year 2025-26, by a proviso inserted by the Finance (No. 2) Act, 2024.
Note the drafting, because it matters for anyone with an open assessment. The clause was not deleted. A proviso was inserted switching it off prospectively, and the clause remains on the statute book for earlier years. Open assessments and appeals for assessment years 2023-24 and 2024-25 continue under the old law, so a company carrying a historic notice has a live matter even though the provision no longer applies to new rounds.
And there is no successor. We checked the corresponding charging provision in the Income-tax Act, 2025 and it contains no charge on share premium received on a fresh issue of shares.
The practical consequence is that the entire apparatus of angel tax exemption is obsolete. It was never needed for non-residents, who were always outside the provision, and it is now not needed for anyone. Yet the government's own startup portal still hosts a guide explaining how to apply for the exemption, last updated in June 2023, and at least one advisory firm's page carrying a 2026 date still walks founders step by step through logging in and waiting forty-five days for a decision on an exemption from a tax that does not exist.
For what recognition is actually worth now, our guide to DPIIT recognition benefits and how to qualify goes through the benefits that survive.
The live exposure is unexplained credits
With angel tax gone, the real tax risk on a funding round is section 102 of the Income-tax Act, 2025, the successor to the old section 68 on unexplained cash credits.
Section 102(3) carries forward the specific rider that catches funding rounds. Where the company is one in which the public are not substantially interested, and the credit consists of share application money, share capital or share premium, the company's explanation is treated as unsatisfactory unless the resident investor also explains its own source of funds. The three-limb test survives: identity of the investor, creditworthiness of the investor, and genuineness of the transaction.
The rate moved on 1 April 2026, and moved down. The old provision taxed unexplained income at sixty per cent before surcharge and cess. The corresponding provision in the new Act now reads thirty per cent, substituted by the Finance Act, 2026. A surcharge and cess apply on top, and we are deliberately not printing an effective percentage because we could not verify the surcharge figure against the primary schedule.
But the rate is not what makes this provision punishing. No deduction for any expenditure is allowed against this income, and no loss may be set off against it. So a startup with substantial accumulated losses, which is most startups, cannot shelter an addition under this head with those losses. The tax falls on a company that may have no profits at all.
Our recommendation is straightforward: keep the investor documentation you already collected for KYC purposes, and keep it in a form you can produce three years later. Bank statements evidencing the source, the investor's own financials, the executed subscription documents. It costs nothing at the time and it is the entire defence.
Every section number changed on 1 April 2026
The Income-tax Act, 2025 replaced the 1961 Act on 1 April 2026 and renumbered everything. This is not a cosmetic problem. Two of the renumberings actively invert meaning, and any article reusing bare section numbers across the divide is misleading its readers.
Subject | Income-tax Act, 1961 | Income-tax Act, 2025 |
Angel tax on share premium | 56(2)(viib) | No successor provision |
Unexplained cash credits | 68 | 102 |
Tax on unexplained income | 115BBE, at 60% | 195, at 30% |
Losses on change in shareholding | 79 | 119 |
Unquoted share transferred below fair value | 50CA | 79 |
Receipt of property below fair value | 56(2)(x) | 92(2)(m) |
Startup profit deduction | 80-IAC | 140 |
Withholding on payments to non-residents | 195 | 393(2), Table Serial No. 17 |
Look at rows four and five together. Section 79 of the old Act was the loss carry-forward restriction. Section 79 of the new Act is the deemed consideration rule on transferring unquoted shares below fair value. Write "section 79" without naming the Act and you have said the opposite of what you meant.
Row three and row eight are worse. Section 195 of the 1961 Act is withholding on payments to non-residents, one of the most cited provisions in cross-border deal work. Section 195 of the 2025 Act is the thirty per cent charge on unexplained income. From 1 April 2026, an unqualified reference to section 195 points a reader at a penal provision.
Two related renumberings for anyone paying a non-resident seller in a secondary: the remittance forms 15CA and 15CB became forms 145 and 146 under the Income-tax Rules, 2026, and the old forms are not valid for remittances on or after 1 April 2026. Our guide to the new Income-tax Act and what it changes covers the transition more fully.
Carrying your losses through the round
A funding round changes the shareholding, and a change in shareholding can destroy accumulated losses. Section 119 of the Income-tax Act, 2025 is where that is dealt with.
The general rule requires fifty-one per cent continuity of beneficial voting power between the loss year and the current year. The relaxation for an eligible startup works differently: the losses survive regardless of the change in percentage, provided all the shareholders who held voting shares on the last day of the loss year still hold those shares, and the loss was incurred within ten years of incorporation.
Two things worth knowing. The limbs are alternatives, so a company failing the all-shareholders test can still fall back on the general fifty-one per cent test. But the startup limb requires every loss-year shareholder to still hold, which means a single early angel taking a full exit in the secondary component of your round can break it. That is a real trade-off to price before agreeing a secondary, not after.
Running a round without an in-house compliance team
Almost no company raising its first or second round has anyone whose job this is. That is normal and survivable, provided the work is designed rather than remembered.
What genuinely needs a professional signature
Less than founders fear, and in different places than they expect.
The registered valuer report has to come from a valuer registered with the Insolvency and Bankruptcy Board of India. Where foreign money is involved, the exchange control valuation has to come from a chartered accountant, a SEBI-registered merchant banker or a practising cost accountant. The company secretary's certificate for FC-GPR is a practising professional's document. PAS-3 generally needs certification. And the definitive documents need a lawyer, because the shareholders' agreement will bind you for years and the articles amendment has to mirror it.
Everything else is process. Convening the meetings, drafting the resolutions in the right order, issuing PAS-4 to the right people, opening the separate bank account, diarising nine dates from three trigger events, assembling the PAS-3 annexures before the allotment rather than after. None of that requires expertise. It requires somebody to own the sequence.
That distinction is why the reflex to hire a full-time company secretary for a first institutional round is usually the wrong spend. A retainer covering the certified filings, plus one internal owner who holds the calendar, does the same job. What does not work is assuming the investor's counsel is watching your filings. They are watching their client's risk, which is not the same thing.
Build the calendar backwards from the allotment date
Pick the target allotment date before anything else, then work outwards in both directions.
Backwards from it: the special resolution and its general meeting, the SH-7 if the authorised capital needs raising, the board resolution identifying the investors, the MGT-14 that has to precede PAS-4, the offer letter itself, and the separate bank account, which should be open before a rupee moves. Forwards from it: PAS-3 at fifteen days, FC-GPR at thirty, MGT-14 at thirty, FC-TRS at sixty from its own earlier trigger, and share certificates at two months.
A smarter approach than working to each deadline is working to the deadline minus a third. File PAS-3 on day eight rather than day fifteen and the money unfreezes a week sooner, which on a company burning Rs 40 lakh a month is worth roughly Rs 9 lakh of liquidity you already owned.
And do the Rule 9B check first, before the term sheet, because it is the only item on this list that can stop the round rather than delay it.
If holding a funding round's compliance calendar in one head is pulling you away from closing the round itself, Outsource360 handles company registration and compliance as a managed service, alongside virtual legal advisory for the definitive documents and virtual CFO support for the cap table and investor reporting. Book a consultation if it would help to talk it through.
Frequently asked questions
What compliance is required after raising a funding round in India?
For a private limited company issuing shares to new investors: a special resolution under section 62(1)(c), Form SH-7 within thirty days if the authorised capital needs increasing, Form MGT-14 for the board resolution before the offer letter goes out and again within thirty days for the special resolution, a PAS-4 offer letter, allotment within sixty days of receiving the money, Form PAS-3 within fifteen days of allotment, and share certificates within two months. Where a foreign investor subscribes, Form FC-GPR follows within thirty days of allotment.
Is PAS-3 due in fifteen days or thirty days?
Both, depending on the route. Fifteen days from allotment for a private placement under section 42(8), which is what a round with new investors is. Thirty days under section 39(4) for everything else, including rights issues, bonus shares and ESOP exercises. A lot of published advice gives a funding round the thirty-day figure, which is wrong.
Can the company use the investment money before PAS-3 is filed?
No. Section 42(6) confines application money to a separate bank account and permits it to be used only for adjusting against the allotment or for a refund. The 2018 amendment tied its release to the filing of the return of allotment, so the money is legally immobile until PAS-3 reaches the Registrar, even after the shares have been allotted.
Is angel tax still applicable in India?
No. Section 56(2)(viib) of the Income-tax Act, 1961 stopped applying from assessment year 2025-26, and the Income-tax Act, 2025 contains no successor provision. But the clause was switched off by an inserted proviso rather than deleted, so open assessments for earlier years continue under the old law. There is no longer any reason to seek an angel tax exemption on a current round.
Do I still need a merchant banker valuation for my round?
Not for income tax purposes on a fresh issue. That requirement existed to serve angel tax and went with it. You do still need a registered valuer report under section 62(1)(c) of the Companies Act, and where a non-resident subscribes you need a valuation under the exchange control pricing rules, which may be done by a chartered accountant, a SEBI-registered merchant banker or a practising cost accountant.
Can I issue physical share certificates to my seed investor?
Only if the company is a small company. Rule 9B requires every private company that is not a small company to issue securities exclusively in dematerialised form, and a company that has not complied cannot issue securities at all until it does. The small company thresholds rose to Rs 10 crore of paid-up capital and Rs 100 crore of turnover on 1 December 2025, and applicability is tested on the last day of the financial year against audited accounts.
Does FC-GPR run from the date of allotment or the date the money arrives?
From the date of allotment. Thirty days from the board resolution allotting the shares, not from the remittance. On a round that closes in tranches those are different dates, and diarising the wire date is a common cause of late filing.
What happens if we do not allot shares within sixty days of receiving the money?
The company has to refund the entire amount within fifteen days of the sixty-day period expiring. If it fails to do so, interest runs at twelve per cent a year from the sixty-first day. A round that stalls in diligence past sixty days does not pause, it unwinds.
Do SAFEs work in India?
No, not in their US form. A SAFE is a contractual right to future equity and falls outside the closed list of instruments through which foreign investment can be received, outside the two kinds of share capital permitted by section 43 of the Companies Act, and against the requirement that a conversion formula be fixed upfront. Indian startups use the iSAFE instead, which is issued as compulsorily convertible preference shares and converts on the next priced round or at three years, whichever comes first.
Is a term sheet binding in India?
Partly. A typical Indian term sheet carves out confidentiality, approvals, expenses, exclusivity, and governing law and arbitration as binding, and those bind. As to the rest, the Delhi High Court held in May 2025 that clear non-binding wording is not overridden by the parties' subsequent conduct, setting aside an arbitral award that had found otherwise. Older commentary saying conduct can make a term sheet binding reflects the position that was overturned.
How long can a convertible note run, and what is the minimum?
Ten years from the date of issue, converting into equity shares or being repaid at the holder's option. The minimum is Rs 25 lakh or more in a single tranche, per investor, and amounts cannot be aggregated across smaller tranches to reach it. Only a DPIIT-recognised private company can issue one to a non-resident, so an LLP cannot.
Should the ESOP pool be created before or after the investment?
It is negotiable, and the timing decides who pays for it. A pool created pre-investment dilutes only the existing shareholders, with the investor's percentage calculated after that dilution. Created post-investment, the dilution is shared. On a Rs 40 crore pre-money with a Rs 10 crore raise and a fifteen per cent pool, the difference is roughly seven percentage points of founder ownership.
Does a founder selling shares in the round need a separate filing?
Yes, if the buyer is a non-resident. That is a transfer rather than an issue, so it reports on Form FC-TRS within sixty days of the transfer or of the receipt of consideration, whichever is earlier. The obligation sits on the resident party, which means the founder personally, even though the company usually files it in practice.
Do we need government approval if one of our investors has a Chinese shareholder?
It depends on whether the investment is direct or indirect. A direct investment by an entity or citizen of a land-border country needs approval at any size. Where the investor is incorporated elsewhere, the test is beneficial ownership, and approval is required above ten per cent or where there is control. Below that, the automatic route is available but the investment still has to be reported, and the reporting duty has no minimum threshold at all.
Will our accumulated losses survive the round?
Usually, on one of two tests. The general rule requires fifty-one per cent continuity of beneficial voting power. An eligible startup can instead rely on all its loss-year shareholders continuing to hold their shares, for losses incurred within ten years of incorporation. The trap is that the startup route requires every one of them, so a single angel exiting fully in a secondary can break it.
What does it cost to get a round's compliance wrong?
The penalties are the smaller part. The larger costs are the money staying frozen while the runway burns, an allotment made outside the authorised capital that cannot be cured by paying a fee, a private placement that tipped into a deemed public offer with a penalty of the higher of the amount raised or Rs 2 crore, and defects that resurface as an indemnity or a discount in the next round's diligence.
References
Companies Act, 2013: sections 39, 42, 43, 46, 56, 62, 67, 85, 88, 90, 92, 118, 137, 164(2), 170, 188, 189, 450 and 62(1)(c) read with the valuation requirement.
Companies (Prospectus and Allotment of Securities) Rules, 2014, rules 9A, 9B, 12 and 14; Companies (Share Capital and Debentures) Rules, 2014, rules 12, 13 and 16.
Companies (Specification of Definition Details) Amendment Rules, 2025, raising the small company thresholds with effect from 1 December 2025.
Ministry of Corporate Affairs exemption notification G.S.R. 464(E) dated 5 June 2015, applicable to private companies.
Companies (Share Capital and Debentures) Amendment Rules, 2019, G.S.R. 574(E) dated 16 August 2019, extending the startup carve-out in rule 12 to ten years.
Copyright Act, 1957, section 17.
Foreign Exchange Management Act, 1999, with the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, rules 2(k), 6(a) and 21, and the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019.
Reserve Bank of India, Master Direction on Foreign Investment in India, as updated to 15 June 2026, in particular paragraphs 6.14, 8.1.1, 8.2, 8.3.1 and Section 9, rbi.org.in.
Reserve Bank of India, A.P. (DIR Series) Circular No. 16 dated 30 September 2022, on late submission fees; and the Foreign Exchange (Compounding Proceedings) Rules, 2024.
Department for Promotion of Industry and Internal Trade, Press Note 2 of 2026 Series, and the Foreign Exchange Management (Non-Debt Instruments) (Amendment) Rules, 2026, notified 1 May 2026.
Income-tax Act, 1961, sections 56(2)(viib) and 68, as they applied before the dates given in the text.
Income-tax Act, 2025 (Act No. 30 of 2025), in force 1 April 2026, sections 79, 92, 102, 119, 140, 195 and 393, as amended by the Finance Act, 2026 (Act No. 4 of 2026); and the Income-tax Rules, 2026.
Finance (No. 2) Act, 2024, inserting the proviso disapplying section 56(2)(viib) of the Income-tax Act, 1961.
Ministry of Corporate Affairs, mca.gov.in, for the current form set; and Startup India, startupindia.gov.in, for the recognition framework and the Seed Fund Scheme.
Disclaimer
This article is for educational and general business information purposes only and does not constitute professional legal, financial, or tax advice. Filing obligations, due dates, thresholds and penalties change by notification and circular, sometimes mid-year, and the correct position for any specific company depends on its size, entity type, shareholding, sector and the residency of its investors. Several points in this article are expressly unsettled at the date of writing and are flagged as such in the text: the per-day penalty quantum for a late return of allotment, on which published sources conflict; whether the company law and exchange control valuations can be satisfied by a single report; whether the exchange control definition of a startup company carries through to the superseding recognition notification of February 2026; whether a Hong Kong incorporated investor falls within the land-border approval regime; and whether the May 2025 judgment on term sheets has been appealed. Consult a qualified company secretary, chartered accountant or advocate before acting on any date, form, threshold or figure set out here.
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