Can Companies Converting From a Proprietorship get DPIIT recognition?
Answered against gazette notification G.S.R. 108(E) dated 4 February 2026, which superseded the 2019 notification and changed four things most published guidance has not caught up with.
- VerdictEligible, if the transfer is right
- Start withDocument the transfer first
- Watch forThe 20% plant tolerance matters
- Government fee₹0
Two lists decide the whole of this, and they are different lengths, which is the single fact most worth taking away. Five entity types can be recognised. Only two of them can go on to claim the income tax deduction behind recognition. A great deal of published guidance merges the two and produces an answer that is right about the certificate and wrong about the money.
| Entity type | Can be recognised? | Can claim the Section 140 deduction? |
|---|---|---|
| Private limited company, including a One Person Company | Yes | Yes |
| Limited liability partnership | Yes | Yes |
| Partnership firm registered under Section 59 | Yes | No |
| Multi-state cooperative society | Yes | No |
| Cooperative society under a State or UT Act | Yes | No |
| Sole proprietorship | No | No |
| Unregistered partnership firm | No | No |
| Foreign company, branch or liaison office | No | No |
Which benefit should Companies Converting From a Proprietorship chase first?
The most useful thing on this page, and the part a generic benefits list cannot give you. Recognition unlocks a set of separate applications to separate authorities with very different odds, and the right first move is not the same for every applicant.
Start here
Get the transfer documented properly, then apply. This is worth doing in the right order because the paperwork is what somebody reads years later, and the income tax side is stricter than the DPIIT side: Section 140(3) bars a start-up "formed by splitting up, or the reconstruction, of a business already in existence" and one "formed by the transfer to a new business of machinery or plant previously used for any purpose".
The reason the order matters is structural rather than tactical. Recognition itself is close to routine for an eligible entity: it is free, it needs two attachments and it is normally decided in days. Everything behind it is a separate decision by a separate body, and those bodies do not share a timetable, a form or a success rate. Chasing the hardest one first is the commonest way to spend six months and claim nothing.
Certificate of Recognition
Included with recognitionThe status itself, and the standing to apply for everything else. Issued by DPIIT on approval, free, downloadable from your portal account.
The three-year profit deduction
Check your entity typeOne hundred per cent of profits for any three consecutive years out of the first ten, under Section 140 of the Income-tax Act, 2025. A separate Form-1 application to the Inter-Ministerial Board, open only to a company or an LLP.
How the Board application worksConcessional intellectual property fees
Claimed when you fileThe concessional fee band at the Patent Office and the Trade Marks Registry, plus expedited patent examination. Claimed by you on the form at the point of filing, with the recognition certificate as evidence.
Public procurement relaxations
Register as a sellerRelief from the prior turnover and prior experience conditions that ordinarily keep a new supplier out of a government tender. It reaches you as a supplier attribute on a live seller account rather than on the certificate alone.
Startup India Seed Fund Scheme
Through an incubatorSupport for proof of concept, prototyping, trials and market entry, disbursed through DPIIT-approved incubators rather than by the government directly, so the incubator you choose is effectively deciding your application.
Seed funding assistanceThe Bihar state scheme
State levelGrants, allowances, reimbursement of intellectual property costs, refunds of state levies and relaxed state tenders. Usually the largest reachable cash for an early company, decided by a state startup mission on its own policy and timetable.
Capital gains rollover into startup equity
No longer existsSections 54GB and 54EE of the Income-tax Act, 1961 were not carried forward into the Income-tax Act, 2025, so both ceased on 1 April 2026. Still listed as a live benefit on a great many pages.
Status is read from G.S.R. 108(E), the Income-tax Act, 2025 and each scheme's own terms. "Separate application" means a different authority decides it and recognition alone will not produce it.
What is closed off to Companies Converting From a Proprietorship?
The half of the answer a page selling the service has no incentive to give you, which is exactly why it belongs here. Knowing what you cannot claim saves more time than knowing what you can.
What you cannot reach on this profile
Nothing outright, but two things need care. Section 140(6) gives the previously used plant and machinery limb a twenty per cent tolerance of total value, and Section 140(5) disregards imported second-hand machinery never previously used in India. Those tolerances are the difference between a defensible claim and a refused one, and they are measured, not argued.
And one condition that applies to every recognised startup
Paragraph 4 of G.S.R. 108(E) requires a recognised startup to "deploy its funds primarily towards its core business activities, innovation, research, scaling, or operational requirements". Paragraph 5 then prohibits investment, during the period of recognition, in eight categories unless integral to core operations: a residential house or the land under it, other land or buildings not occupied for business, loans and advances, capital contributions to unrelated entities, shares and securities beyond treasury operations, high-value motor vehicles, aircraft and yachts, jewellery and other luxury assets, and any other speculative or non-productive asset the Central Government notifies.
This is new in 2026 and it is the least covered part of the framework. It is a continuing condition rather than a filing, so nothing is due and nothing is submitted, but it does mean a recognised startup holding raised capital should read the list before deciding where that capital sits. Beyond it, recognition adds no separate returns of any kind.
What Companies Converting From a Proprietorship should put in the application
The application turns on one document, and what makes that document land differs by applicant more than anything else on this page. Paragraph 2(i)(b) requires a write-up on the nature of the business "highlighting how" it is innovative or scalable. That is a question, and most applications answer a different one.
For this profile specifically
Frame the company as a new business rather than a continuation, and mean it. What is genuinely new: the product, the technology, the model, the market. Where assets have come across, list them and their value against the twenty per cent test rather than leaving the position to be reconstructed later from a balance sheet.
Two structural points hold for every applicant. First, the test in paragraph 1(a)(iv) is an either or: "working towards innovation, development or improvement of products or processes or services, or is a scalable business model with a high potential of employment generation or wealth creation". Those are alternatives of equal standing, and an applicant with no novelty claim can rest entirely on the second. A great many applications strain to argue innovation when the real case was scale.
Second, what fails is almost always the register rather than the substance. "Innovative, disruptive, technology-driven platform" appears in a large share of the applications that come back with a request for further information, because it describes nothing that can be checked. What lands is specific and falsifiable: what the product does, what people did before it existed, what is different about your approach, and what evidence exists that it works.
The 2026 limits, which most guidance has not caught up with
Two regimes changed within two months of each other, and a great deal of otherwise reliable published guidance predates both. If a page you are reading still says ₹100 crore, you now know when it was last updated.
| Still widely published | The position now | What changed it |
|---|---|---|
| Turnover must be under ₹100 crore | Under ₹200 crore. Deep Tech Startups: ₹300 crore | G.S.R. 108(E), 4 February 2026 |
| Three entity types are eligible | Five. Multi-state and state cooperative societies were added | Paragraph 1(a)(i) of the 2026 notification |
| The tax holiday is Section 80-IAC, 1961 Act | Section 140 of the Income-tax Act, 2025, from 1 April 2026 | Repeal and replacement of the 1961 Act |
| The deduction ceiling is ₹100 crore | ₹300 crore, a different figure from the ₹200 crore recognition test | Section 140(16)(b)(ii), Finance Act, 2026 |
| Angel tax is exempted for recognised startups | Angel tax is abolished for everyone. There is no startup-specific exemption | Omitted by the Finance (No. 2) Act, 2024 |
| Investors can roll capital gains into a startup tax free | They cannot. Sections 54GB and 54EE have no successor | Both lapsed on 1 April 2026 |
What Bihar adds for Companies Converting From a Proprietorship
The central recognition is identical everywhere in India, so nothing above this point changes because the entity is registered in Bihar. What does change is the state layer, and for an early company that is usually where the larger and more reachable money is.
The Bihar layer
DPIIT recognition itself is identical in Bihar and everywhere else in India, because it is central law under a single national notification. What varies is the state layer that sits beside it. Most states and union territories run their own startup policy through their own startup mission, with its own portal, its own registration and its own incentives, and those incentives are usually where the actual cash is for an early company. We confirm which policy is in force for Bihar, what it currently pays and whether it needs its own registration, against the state's own portal at the time you ask, rather than repeating a scheme name off a page that may be two policies out of date.
Two things are near universal across state startup policies and both matter to the order you do this in. Most treat DPIIT recognition as a precondition of their own benefits, so the central application comes first. And almost all require their own separate registration on the state portal, which the central certificate does not perform for you. A founder who obtains recognition and stops there has finished the free half and left the half with the money in it untouched.
What we need from Companies Converting From a Proprietorship
Shorter than almost every published checklist, because paragraph 2(i) of the notification names exactly two attachments and the rest is captured on the form itself.
- Certificate of incorporation of the new company
- The transfer or takeover agreement, and a schedule of any assets moved across with values
- Whatever you can tell us about what the business does and what is new about it. We draft the write-up from that, and it is the document the decision turns on
- Not a Digital Signature Certificate and not a Director Identification Number. Neither is used on the recognition form, which is authenticated by an OTP to your mobile and email
Find out exactly what Companies Converting From a Proprietorship can claim, in writing
Your entity type read against the five eligible types and the narrower two that reach the deduction, your dates and turnover read against the 2026 limits, and a written note of which benefits are open to you. Free, before any engagement.
Guides and resources
Longer reading on the same cluster: the step-by-step recognition walkthrough, the deep pages on the Board application and Section 140, and the scheme detail behind the ledger above.
Startup India for Companies Converting From a Proprietorship: common questions
Answered against gazette notification G.S.R. 108(E) dated 4 February 2026 and the Income-tax Act, 2025, and against the recognition applications we file every week.
Startup India registration for Companies Converting From a Proprietorship in Bihar, from ₹1,999
Eligibility read against the 2026 notification, the write-up drafted for this profile, and a written note of which benefits your structure can actually reach. The read is free, and there is no government fee on the recognition itself.
Nebin Binoy 
