Summary: To be eligible for DPIIT startup recognition, enterprises must meet several criteria. They must be no more than 10 years old from incorporation, registered as a partnership firm, LLP, or private limited company, and have an annual turnover not exceeding Rs. 100 crore. The entity should not be formed from the split or reconstruction of an existing business and must focus on innovation or scalable business models with significant potential for wealth and employment creation. Compared to MSMEs, which are defined by the MSMED Act and have specific investment and turnover limits, startups are only subject to turnover limits. Startups have no investment ceiling but must meet innovation and scalability criteria. MSMEs must file UDYAM Registration for recognition, while startups need DPIIT recognition. Startups benefit from tax holidays and exemptions on capital gains, which MSMEs do not receive unless they also qualify as startups. Additionally, while MSMEs can be formed by splitting existing businesses, startups cannot. Lastly, startups are exempt from angel tax under certain conditions, unlike MSMEs, which may be subject to this tax.
Enterprises must meet the following criteria to be considered eligible For DPIIT start up recognition.
1. Company Age– Time period of operation and incorporation should not be exceeding 10 years from date of incorporation.
2. Company Type- Registered as Partnership firm/LLP/PLC.
3. Annual turnover– Not exceeding rs. 100 cr. For any of the F.Y since its incorporation.
4. Original Entity– Entity should not have been formed by splitting up or reconstruction an already existing business.
5. Innovation and Scalable– The work should be towards development, improvement of product, process or services and /or have scalable business model with high potential for creation of wealth and employment.
| S. No | Point of Difference | MSME | Start- Up |
| 1 | Governing Act | MSME is defined by Micro, Small & Medium Enterprises Development Act,2006 MSMED Act. | Startup is defined by the DPIIT’s Startup notification No. G.S.R. 127(E), dated 19.02.2019 i.e Latest Startup Notification (LSN). |
| 2 | Threshold Limit | Investment and Turnover limits both shall be satisfied to act as MSME. | Only Turnover Limits of Rs. 100 cr. is applicable. |
| 3 | Status | MSME status will exist as long as investment and turnover limits are not exceeded. | Startup turnover will last till turnover exceeds Rs 100 cr. Or 10 years from date of incorporation, whichever is earlier |
| 4 | Turnover Limit | Turnover limit for MSME Status is Rs. 250 cr. (net turnover i.e total turnover less export turnover is considered for MSME limit. | Turnover Limit for startup status is Rs. 100 Cr. (Export turnover will be included for computation of 100 cr. limit. |
| 5 | Investment Ceiling | Investment ceiling limit for MSME status is RS. 50 cr. If this limit exceeded, then such enterprises will be ceased to be MSME. | There is NO investment ceiling under LSN. |
| 6 | Udyam Registration | MSME must file UDYAM Registration to recognise as MSME | Startup Enterprises must file application for DPIIT Recognition. |
| 7 | Benifits | Benefit under the MSMED Act available to MSMEs. | Benefits under the MSMED Act are not available to start up unless they qualify as MSME by satisfying the investment limits in the definition and file Udyam Registration. |
| 8 | Tax holiday/subsidy in tax | No tax holiday for an MSME unless it qualifies as startup and is recognized by DPIIT. | Tax holiday u/s 80-IAC of the Income tax act, 1961 for start up which is an LLP or private Limited company. |
| 9 | Capital Gain | No tax exemption to MSME in case of Capital Gain from sale of residential property of promoters if the same is invested into a private Limited Company But does not qualify as satrtup. | Tax exemption under section 54GB of Income tax act 1961. |
| 10 | Reconstruction/Splitting up | Enterprises will be an MSME even if it is formed by splitting up or reconstruction of business already in existence. | Enterprises will not be qualify as start-up. |
| 11 | Eligible Organisation | Proprietorship/Partnership firm/LLP/PvtCo./Public Co./AOP/HUF/BOI/Cooperative Soceity, these can be MSME. | Only Partnership firm/LLP/Pvt Co. will be eligible for startup status |
| 12 | Business Model | Enterprises can follow any business model to qualify as MSME. | Business model must contain innovation, development, improvement of products/services OR it must be scalable with high potential of employment generation of wealth creation |
| 13. | Angle Tax (proposed to abolish angel tax for all categories of investors with effect from FY 2025-26. 2024) | MSME private limited companies which do not qualify as startup are liable to angel tax on shares issued at premium if issue price is higher than Fair market value. | Start up private limited companies exempted from angel tax if investment made or to be made by all investor including family and friends do not exceeds Rs. 25 cr. |
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