DPIIT’s Megha Singh Nandiwal Tightens India Startup Governance With 7-Year Audit Window
New Delhi | May 15, 2025
The honeymoon phase for non-compliant startups is officially over. Megha Singh Nandiwal, newly appointed reform spearhead at the Department for Promotion of Industry and Internal Trade (DPIIT), has thrown down the gauntlet—and her message is unflinching: bend the rules, dodge your dues, or hide behind the “startup” label to justify shady operations, and she will dig you out.
“This isn’t about who got funded or who avoided taxes. This is about the fundamentals—did you deduct TDS? Did you classify employees fairly? Are you using investor funds transparently? Are you actually running a business—or just performing one?” she stated in an internal strategy meet.
In sync with the Finance Bill’s imposition of a 200% penalty on the misuse of angel tax exemptions, Nandiwal’s DPIIT is now going several steps further. Her team has the mandate—and the authority—to open a startup’s books for up to the past seven years if any signs of non-compliance emerge. And that’s exactly what they’re doing.
From the misuse of investor capital and manipulated payrolls to misclassified employees, ghost vendor payments, and fraudulent reimbursements—nothing is off the radar. DPIIT is actively reviewing opaque transfer pricing arrangements, backdated invoices, and suspicious intercompany dealings. Employee policies that look good only on paper, PF and ESIC evasions using off-roll staffing, and exploitative HR practices are now under intense scrutiny.
“This isn’t just about tax evasion. It’s about a culture of dishonesty and entitlement that has crept into parts of the startup ecosystem,” Nandiwal noted.
And she’s already making moves.
In the last month alone, DPIIT has issued red chits to multiple startups once hailed as disruptors. A mid-size logistics aggregator was flagged for diverting investor funds to undisclosed related-party loans. A health-tech unicorn was caught manipulating payroll data across geographies to dodge statutory dues. A rising edtech firm—once a darling of the VC circuit—was exposed for pushing contract workers into 18-hour workdays without any formal HR protection.
A cross-border SaaS provider is currently under investigation for manipulating transfer pricing structures to suppress domestic liabilities. “Enough with the profitability theatre,” Nandiwal is heard saying behind closed doors. “You can’t chase billion-dollar valuations while ignoring basic governance. That ends now.”
While DPIIT will continue to support genuine businesses building with integrity, it is drawing a hard line against those using the startup badge to bypass accountability. Only Category-I AIF VC investments will now be eligible for angel tax exemptions—and even those are being subjected to tighter scrutiny. Behind the jargon, term sheets, and glossy decks, Nandiwal is looking at the one thing that doesn’t lie: the books.
And this isn’t just a warning shot. It’s the beginning of a structural reckoning. If you’re running a startup with skeletons in your compliance closet, this may be your final chance to clean up—because DPIIT isn’t watching from afar anymore.
It’s coming for your books.
