What is an incubation agreement?
An incubation agreement is the contract between a startup and an incubator: the incubator provides space, mentoring, services and sometimes funding, and the startup accepts its rules, reporting and any fee or equity. An accelerator agreement is the same idea for a fixed cohort, usually with a cheque and a demo day in return for equity. In India, an incubator that passes on Startup India Seed Fund Scheme money must follow the Scheme: grants of up to ₹20 lakh released against milestones, no fee in cash or in kind for selection, disbursement, incubation or monitoring, and a utilisation certificate for each tranche.
Is 7 percent for ₹30 lakh a good deal from an accelerator?
Work it out as a valuation first. ₹30 lakh for 7 percent implies a company value of about ₹4.29 crore, or ₹6.43 crore if you also count ₹15 lakh of claimed in-kind value. If the programme's 7 percent passes through a seed round and a Series A at 15 and 30 percent dilution, it becomes 4.17 percent, worth ₹4.17 crore at a ₹100 crore post-money: 13.9 times the cash. That can still be worth paying if the programme reliably gets you a seed round you would not otherwise raise. Compare it with what angels are quoting; Saffron's angels paid at a ₹16 crore cap seven months later.
Can a company give shares to an accelerator in exchange for the programme?
A company cannot easily give shares to an accelerator in exchange for the programme. Sweat equity under Section 54 of the Companies Act 2013 is only for employees and directors, so it does not fit a programme. A preferential issue under Section 62(1)(c) needs a special resolution and a registered valuer's price under Rule 13 of the Companies (Share Capital and Debentures) Rules 2014, and the shares must be paid for in cash or in kind at that price; equity at ₹10 face value 'for the programme' does neither. Lawful routes exist: a lower cap on a single iSAFE that prices the programme in, or shares issued for the programme services at a registered valuer's price with the services valued too; a nominal iSAFE or warrants need the same valuer-backed price.
What does the iSAFE cap mean in an accelerator deal?
The cap is the highest valuation at which the accelerator's money converts into shares. With ₹30 lakh at a ₹6 crore pre-money cap, the accelerator gets about 5 percent at conversion, or more if your seed round is priced below the cap. A cap is a ceiling, not a valuation, but a low cap is a low valuation in disguise. Check three conventions in writing: whether the cap is pre-money or post-money, whether the option pool and other notes sit inside the capitalisation it divides, and what happens at the long-stop date. The Seed Instruments Explainer works through the stacking.
What does the Startup India Seed Fund Scheme give, and who qualifies?
SISFS, run by DPIIT through approved incubators, offers up to ₹20 lakh as a grant for proof of concept, prototype development or product trials, and up to ₹50 lakh as debt or convertible instruments for market entry, commercialisation or scaling, at interest not above the repo rate. To qualify you need DPIIT recognition, incorporation not more than 2 years before you apply, a technology-based product or process with market fit, Indian promoters holding at least 51 percent, and not more than ₹10 lakh of monetary support under other Central or State schemes. Each form of support is available once. DPIIT's June 2026 playbook gave 31 May 2026 as the last date to apply; check the portal for a new window.
Is a SISFS grant taxable?
For income tax, a SISFS grant is usually taxable. Section 2(24)(xviii) of the Income-tax Act 1961 (renumbered under the Income-tax Act 2025 from 1 April 2026) treats grants from government or any authority, body or agency as income, except the part that reduces the cost of an asset, and Section 145B(3) taxes it in the year of receipt. For most startups the grant reduces a tax loss rather than creating a bill. For GST, usually no. GST applies to a supply made for consideration, and a SISFS grant buys nothing from you: neither the incubator nor DPIIT receives a service, licence or equity in return, and the progress reports you file are conditions of the grant, not something they buy, so there is no supply and your agreement should say so. Do not rely only on the CGST Act's exclusion of government subsidies, because it speaks of a subsidy given by the Central or a State Government and your money comes from the incubator. If a grant comes with a deliverable for the funder, such as a pilot, a licence or a report it will use, it can be treated as payment for a service, so take advice from a tax expert before you sign. Confirm both points for your facts with your tax expert.
Do incubators take equity?
Government-supported incubators administering SISFS do not: the Scheme gives grants and debt, and the incubator may not charge you any fee, in cash or in kind, for selection, disbursement, incubation or monitoring (paragraph 8.9 of the guidelines). Many still charge seat fees, usually ₹3,000 to ₹10,000 a month, plus GST unless the incubator is a TBI recognised by DST's NSTEDB, but a startup selected under the Scheme 'shall not be charged any fees' (paragraph 5.12), so ask why a seat fee is charged at all. Some incubators run their own equity programmes alongside, typically taking 2 to 5 percent for incubation; keep those in a separate document and never let equity become a condition of the grant. Private accelerators, by contrast, almost always take equity, often through an iSAFE plus a slice for the programme itself.
What is a utilisation certificate, and who signs it?
A utilisation certificate is a practising Chartered Accountant's certificate of how much grant you received, how much you spent under each head of the approved plan, the interest earned and the balance in hand, with a statement of expenditure and the bills behind it. It must carry a UDIN, which the incubator can verify with ICAI. Under SISFS you need one for each tranche before the next is released, and an audited one for the whole grant at the end. Line up the accountant before the first tranche lands, and keep the grant ledger in the incubator's format from day one.
What happens if we miss a milestone?
Under a fair SISFS agreement, nothing punitive. The next tranche waits until the milestone is met, or until the ISMC releases it in part or approves a revised milestone on your application. You do not refund money properly spent: an honest failure to achieve a milestone, or a good-faith change of direction notified in advance, is not misuse. What does trigger a refund with interest is spending outside the permitted heads, false reports or certificates, or diversion to founders. Under a private accelerator agreement there is usually no milestone at all; the cost of a slow start is reputational.
Can we take two government grants?
Yes, with care about order and overlap. The SISFS eligibility test looks back from your application date: if you have already received more than ₹10 lakh of monetary support under another Central or State scheme, you are out. Prize money, subsidised working space, a founder monthly allowance and lab access do not count. After the SISFS grant, other schemes may still fund you, but never the same expenses twice, and you must disclose every other grant in your progress reports. Undisclosed double funding is a misuse event, and each form of SISFS support is available only once.
Can the incubator's address be our registered office?
Only if the incubator agrees in writing. The MCA accepts an address the company does not own only with proof that you may use it, under Rule 25 of the Companies (Incorporation) Rules 2014: a no-objection letter from the owner or an authorised occupant (an incubator housed in a university building can sign if it shows its own allotment or occupancy authority), or a notarised lease or rent agreement in the company's name with a rent receipt not older than one month, together with a utility bill for the premises not older than two months. A GST principal place of business needs similar consent. A seat licence is a licence to use a desk, not that consent, and many agreements forbid using the address for registrations. If the incubator does issue an NOC, expect it to end with the incubation: you will then need Form INC-22 within 30 days, and a special resolution if you move out of the city.
What should we check before demo day?
Before demo day, check four things that the accelerator agreement decides. First, the round mechanics: whether your iSAFE converts at the demo-day round and what the MFN and follow-on rights then require. Second, publicity: the deck the programme circulates should contain only numbers you have approved. Third, confidentiality: investors at a demo day sign nothing, so present nothing you would not publish. Fourth, the signalling risk: if the accelerator has a follow-on right, know before you pitch whether it intends to use it, because new investors will ask. Then tidy the basics: cap table, DPIIT certificate and the filings for any instrument already issued.
How do we find an approved incubator?
Start with the startup incubators directory on this site, which lists 3,691 incubators and accelerators across 34 States and Union Territories, with scheme tags and links to apply. Browse by State and look for the scheme tags: SISFS-approved, DST TBIs, Atal Incubation Centres, MeitY TIDE 2.0 centres. Then confirm the incubator's SISFS status and open calls on the Scheme portal at seedfund.startupindia.gov.in, because approvals and corpus availability change. Shortlist two or three in your sector, read their incubation agreement before applying, and run the Startup India Eligibility tool to confirm you meet the recognition tests first.
