The government has announced a significant policy update granting R&D tax benefits to the Indian subsidiaries of startups, aimed at fostering innovation, technology development, and local product engineering. Under this move, subsidiaries registered in India, whether fully or partially owned by foreign parent startups, will now be eligible for deductions on eligible research and development expenditures. This decision marks a strategic push to localize core innovation activities and make India a global R&D destination.

The tax benefits will apply to in-house research units, product development labs, and technology testing facilities that are recognized by the Department of Scientific and Industrial Research (DSIR). Eligible subsidiaries will be able to claim incentives for both capital and revenue expenses, including salaries of R&D staff, equipment costs, and prototype testing. In addition, new guidelines simplify the process for securing DSIR recognition and ensure faster approvals for startups operating in sectors such as fintech, biotech, clean tech, and advanced manufacturing.

Startup founders and industry experts have welcomed this move, citing that it levels the playing field for Indian subsidiaries of global startups, encouraging them to shift more of their product design, software development, and IP generation to India. The benefits are expected to significantly reduce operational costs, improve cash flow, and create a strong foundation for long-term technological competitiveness. By incentivizing innovation at the subsidiary level, the government aims to boost economic value creation, employment, and export potential in high-tech industries.