A grant takes no shares, and it is not free
Before you apply, work out who inside the company will produce certified accounts, on somebody else's calendar, for as long as the project runs.
Summary
- Grant money lands in tranches, and the next one is released against an account of the last one. Cash plans built on the sanctioned figure break early.
- The document that unlocks the next tranche is a utilisation certificate signed by a chartered accountant, not a note from you.
- PRISM can demand its money back with 12% interest if a funded project is abandoned. The instrument is still a grant, and the refund is still cash.
The finance head of a hardware company told us that her grant had cost more than her last . She was not talking about the money. She was talking about four months of her own year, spent proving how the money had been spent.
Four schemes in the register hand over grant money. They are NIDHI-PRAYAS 2.0, PRISM Phase-I, PRISM Phase-II, and the Startup India Seed Fund Scheme, which closed and now reads as history. None of them takes a share of your company. This piece starts after the sanction letter, because the part before it is already covered in the seven stages of an application and where applications stop.
Why does the second tranche depend on the first?
Grant schemes rarely pay in one piece. Under PRISM the applicant signs the terms and conditions first, and grant-in-aid is then released in milestone-linked tranches. Phase-II releases are monitored by a project review committee.
The closed seed fund scheme ran the same way. Its first instalment was released within 60 days of the application, and the rest followed the milestones. PRAYAS sanctions against a project term of 15 months, extendable to 21 months on approval, and longer only with the department's consent.
Two things follow from that, and both are cash-flow facts rather than paperwork ones. Your sanctioned amount is not your available amount. And your project clock starts whether or not your does.
Who signs the utilisation certificate?
A certificate says that the money went where the sanction said it would go. A chartered accountant signs it, and that is the point of the document. The scheme is not asking you. It is asking somebody with a licence at stake.
The register sets the full reporting stack out on one node, the GENESIS matching investment. That scheme asks for monthly progress reports during its acceleration programme, then quarterly reports, certified utilisation certificates, updated cap tables and audited statements.
GENESIS is an scheme, so treat the detail as an example rather than as the rule for grants. In the sanctions we read, a shorter version of the same stack recurs. What it means in practice is that the project needs its own from the first invoice. Nobody can certify books reconstructed from a bank statement in the week the report is due.
The practical test is whether your ledger maps to the sanction. Money is approved against heads of expenditure, and the certificate reports against those heads rather than against your management accounts. If a head in the sanction has no matching line in your books, somebody has to build one later out of invoices.
Is the published ceiling the money you get?
No, on two counts. It is a maximum, and it is capped again as a share of project cost.
PRISM Phase-I pays up to 90% of approved project cost. Within that, Category I is capped at INR 2 lakh, for projects costing under INR 5 lakh. Category II is capped at INR 20 lakh, for projects between INR 5 lakh and INR 35 lakh. Phase-II pays up to INR 50 lakh and no more than half of project cost, for projects between INR 35 lakh and INR 1 crore.
PRAYAS publishes up to INR 20 lakh through a PRAYAS Centre, and up to INR 40 lakh through an Advance PRAYAS Centre. The exact amount is set by the centre's committee. It is worth saying plainly that the published criteria for PRAYAS are not the complete test, and a summary of them is not a decision.
So a grant is co-funding, and your share of the project is a compliance item too. The certified account has to show that your money went in as well as theirs.
That co-funding is also a timing problem. Your share usually has to be spent and evidenced before the scheme releases the next slice of its own. Founders read the ceiling as money coming in, when the first movement is money going out.
How long do you have to keep the paperwork?
Longer than the project, and longer than most of the people who ran it. Record retention of five to eight years appears in the scheme terms the register records. That outlasts the average tenure of the person who filed them.
- The sanction letter and the signed terms, which is the document the whole obligation hangs from.
- Tranche-wise bank statements, showing what arrived and when it arrived.
- Invoices and proof of payment for every head of expenditure named in the sanction, including your own contribution.
- The utilisation certificates, and the working papers your accountant signed them from.
- Progress reports as filed, because each one has to agree with the last one.
None of this is hard. It is simply somebody's job, and a company that has not named that person has not finished accepting the grant.
What happens when a report is late?
The immediate answer is that the next tranche stops. The larger answer is that scheme terms carry three remedies: withdrawal of the support, a demand for a refund, and disqualification from future schemes.
PRISM makes the refund explicit. If the funded project is abandoned, the innovator refunds what was disbursed, with 12% interest. The instrument remains a grant rather than a loan, and the money still leaves the company.
Disqualification is the one founders underrate, because the schemes read each other. PRAYAS asks you to declare that you have not taken PRAYAS or NIDHI-EIR support for the same idea. The closed seed fund scheme capped other government support at INR 10 lakh. Your grant record follows you into the next application.
A grant does not take equity. It takes a finance function, and it keeps taking one for years after the project closes.
Should you take a grant at all?
Usually yes. Not always. The test is not whether the money is useful, because it almost always is. The test is whether you can produce certified accounts on somebody else's schedule while doing the work the grant paid for.
Three situations make us pause. A company with no finance function and an accountant who sees the books once a year. A project whose spending cannot be cleanly separated from everything else the team does. And a plan that needs the whole sanction inside the first quarter.
There is one more reason to decide this carefully now. SISFS paired a grant of up to INR 20 lakh with up to INR 50 lakh of convertible debentures. Since it closed, the register has no convertible-debt scheme left at all. At prototype stage the grant schemes are what remains, so the reporting question cannot be dodged by choosing a softer instrument.
Read what a grant is as an instrument first, then read PRISM and PRAYAS against your own project plan. If two of the three situations above describe you, fix the finance question before the application, not after the sanction.
Frequently asked questions
Do I need a chartered accountant to take a government grant?
For the reporting, in practice yes. Utilisation certificates are certified by a chartered accountant, and audited statements are asked for alongside them. You do not need one to apply. You do need one before the second tranche.
Can I pay myself out of a grant?
Sometimes, within a limit the scheme sets. PRAYAS allows a sustenance allowance of up to 20% of the approved grant where the innovator has no other income, at the monitoring committee's discretion. It is a slice of the same grant, not an addition to it.
Who owns the intellectual property a grant pays for?
Under PRAYAS the intellectual property generated vests with the innovator. That is one of the better arguments for a grant over an early equity cheque. Terms differ by scheme, so read your own sanction rather than assuming this one.
If I have to refund a grant, was it really non-dilutive?
Yes, and the distinction matters. A refund demand takes cash, not shares. PRISM's clawback on an abandoned project runs at 12% interest, which is a real cost, and your is untouched by it.
General guidance, current as at September 2026. Scheme terms, ceilings and reporting conditions change, and the conditions in your own sanction letter beat anything written here. If you would rather have the reporting calendar built before you accept the money, our grants and schemes work covers it, and it is CS Manavi Arora's desk.
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About the author
Lead - Company Secretarial, Compliance & Fundraise Advisory
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