DPDP Act Compliance Checklist: 5 Crucial Steps for Indian Startups

Introduction

We’re living in a digital fast economy where data is the new currency, whether an individual or an organisation (private/public), maintaining compliance related to data security can turn tides in the digital landscape.

The Digital Personal Data Protection Act (DPDP Act), 2023, marks a turning point for India’s privacy landscape. It provides individuals and businesses with a legal framework to maintain data privacy, influence investor confidence, build customer loyalty, and achieve long-term scalability, and so much more.

On the other hand, non-compliance can be costly. Worst case? Businesses might face ₹250 crore per violation in case of a breach. For the solution, we’ve drafted a five-step DPDP Act Compliance checklist to help startups maintain faster adherence to the DPDP Act. Keep reading to explore further.

What is the DPDP Act?

DPDP Act or the Digital Personal Data Protection Act, 2023, is the first comprehensive privacy law regulating the processing of digital personal information. In short, the legal framework is intended to safeguard the collection, use, and sharing of digital personal information of Indian citizens.

The core aspects of the framework include a consent-based framework for collecting data and empowering individuals with the right to safeguard and hold authority over their own information. The Act imposes obligations on data fiduciaries (data processors). The DPDP Act applies to:

●     All entities processing digital personal data in India, including foreign companies offering goods or services to Indian residents.

●     Extraterritorial scope: Even if processing happens outside India, the Act applies if it relates to Indian users.

Key Principles of the DPDP Act

The following are the key principles of the DPDP Act:

Consent-Based Processing: It requires consent for processing data. Additionally, the Act allows individuals with rights such as accessing, correcting, and erasing data at will.

Data Fiduciaries: Organisations collecting data are known as data fiduciaries. They have different and specific responsibilities, including providing notice and getting consent before processing personal information. Data fiduciaries can only use data as mentioned during the data collection process.           

Significant Data Fiduciaries (SDFs): The government has the right to designate specific organisations as SDFs. However, it depends on several factors, such as the volume and sensitivity of data processed and collected. SDFs have different obligations, like appointing a Data Protection Officer (DPO) and conducting data protection impact assessments (DPIAs).

Data Principals: Data principals are the individuals or entities to whom a set of information belongs. Data must be collected with clear, informed consent. They enjoy specific rights and duties regarding their own data.

Enforcement: The Act establishes the Data Protection Board of India to implement and enforce the law and penalties for non-compliance.

Scope: The Act applies to digital personal information processed within India and also applies to processing outside India if the data involves providing goods or services to data principals within India.

Obligations for Businesses: Businesses, referred to as fiduciaries, have obligations to obtain verifiable consent for collecting data, protect personal data, and minimise collection.

Additionally, they must also report a data breach within 72 hours, and provide a clear and comprehensive data mechanism with specific rules for processing children’s data and cross-border transfer.

Before you launch, make sure your startup is legally secure — read our complete guide to compliance, contracts, and IP protection in Salt Lake and New Town.

Why Startups Must Prioritise DPDP Act Compliance

Negligence to stay compliant with the DPDP Act can lead to heavy damage, paying sizable fines, and harm to business reputation. In fact, several name brands and organisations have faced consequences of non-compliance with the DPDP Act.

Both the WazirX data breach and the CoWIN data breach serve as critical examples of the negative effects due to non-compliance with the DPDP Act. 

Startups usually operate in a fast-paced environment where speed is always a priority. But ignoring compliance can lead to severe damage. Startups must prioritise DPDP Act compliance for the following reasons:

Avoid hefty penalties: The DPDP Act can impose hefty fines on startups for non-compliance or data breach issues.

Protect brand reputation: Non-compliance with the DPDP Act can lead to a data breach, ruining the reputation of a brand. On the other hand, deliberate and consistent efforts to maintain compliance lead to better brand reputation for responsibility and willingness to respect customers’ information, leading to brand loyalty as well.

Gain a competitive advantage: Compliance with the DPDP Act is also a huge attention grabber for organisations in the B2B sector. Startups operating in a competitive market are more attractive choices as vendors for larger enterprises that are also under scrutiny.

Make the Business Future-Proof: adopting the privacy-by-design principle at the very early phase of a startup keeps a business safe from future issues regarding compliance. It’s a good strategy to avoid costly retrofits in the future.

International Operations: Adhering to the DPDP Act aligns with global data protection standards, which are essential to today’s startups.

It is extremely important for industries in the health, fintech, tech, and eCommerce domains to ensure DPDP compliance to avoid damage in the future. Organisations must build internal frameworks to comply with DPDP Act using internal resources or by consulting legal services in India.

Want to expand globally? See how international law firms in India can guide your business.

DPDP Act Compliance Checklist for Startups

If you are a startup or small business owner, it’s critical to build compliance with the DPDP Act. Here’s a five-step checklist to help you make your organisation DPDP compliant:

1. Audit Your Data Collection Practices

First, audit the data collection practices you follow as an organisation. Your old data collection process may or may not adhere to the DPDP Act guidelines. In most cases, over-collection of data is a common compliance issue, turning out as a compliance pitfall. 

Action points:

1. Review all your touchpoints (including website, app, and APIs) and ensure that you’re collecting only essential data.
2. Document the purpose of collecting data for each data field.
3. Implement a retention policy and delete data when it’s no longer necessary.

Pro Tip: Avoid asking for unnecessary details like date of birth if age verification isn’t required.

2. Implement Granular Consent Mechanisms

Consent is the key to building a DPDP compliance checklist. Consent is the cornerstone of the DPDP Act. Here’s what you must do:

1. Use clear, unambiguous language for consent requests.
2. Separate consent for marketing analytics and third-party sharing.
3. Provide easy options for withdrawal and maintain consent logs at every point.

Example: Instead of a single checkbox for “I agree,” offer separate toggles for newsletters, personalised ads, and data sharing.

3. Build Privacy by Design

Security, in reality, is a design principle and must be a priority since the inception of a startup. Unfortunately, most companies treat it like an afterthought and put its importance under the rug. 

Action Points:

1. Encrypt sensitive information at both rest and transit.
2. Implement role-based access controls to the system and make only relevant data available to relevant roles.
3. Automate detection when the purpose ends or upon user request.

Pro Tip: Conduct regular vulnerability assessments and penetration tests.

4. Enable Data Principal Rights

Users get the right to secure and make adjustments to their data under the DPDP Act. That’s why your digital platforms must enable data principal rights. Here’s the action plan:

Action points:

1. Create processes for access, correction, erasure, and grievance redressal.
2. Publish content information for privacy queries.
3. Ensure to respond to requests within the designated timeframe.

Checklist:

✔ Privacy policy updated

✔ Grievance officer appointed

✔ Response workflow documented

5. Prepare for Breach Management

Breaches may occur even after excellent cybersecurity measures and following the DPDP maintenance checklist.

Action points:

1. Let the data protection board know within 72 hours of a breach.
2. Maintain an incident response plan
3. Regular security audits are a must. Ensure to conduct security audits on time and prepare for employee training.

Pro Tip: Simulate scenarios of breach, test your response, and assess your team’s readiness 

Penalties for Non-Compliance

The DPDP Act empowers the Data Protection Board of India to impose sizable penalties on organisations that do not follow it. The fine amount can go up to ₹250 crore per violation. Common factors influencing penalties include:

●     Nature of a breach and its gravity

●     Duration and recurrence

●     Efforts to mitigate risks taken by the entity.

Think Beyond Avoiding Fines

Compliance with DPDP surely helps you avoid hefty fines imposed on your organisation. But there’s more to following a DPDP maintenance checklist to safeguard your organisation. Building a privacy and regulatory compliance-first organisation means investing in your company’s branding.

Maintain compliance to build trust, resilience, and improve operational efficiency. In today’s time, maintaining regulatory compliance is often considered a way to build trust, reliability, and stand out in the startup culture. Consult a legal professional if you want to learn more about maintaining DPDP compliance.

Learn the essential steps to set up your business in India → Starting a Company in India – Key Steps and Tips

FAQs

1. What is the DPDP Act, and why does it matter for Indian Startups?

The Digital Personal Data Protection Act, 2023, is India’s first comprehensive privacy law. This law regulates how businesses collect, store, and process digital information. It’s critical for startups to stay compliant with this law to avoid legal hurdles.

2. What are the Key Steps for DPDP Act Compliance for Startups?

Startups must:

1. Audit data collection process.
2. Implement granular consent mechanisms.
3. Build privacy by design into systems.
4. Enable access and erasure as user rights in their system.
5. Prepare for breach management within a 72-hour notification plan.

3. What Happens if a Startup Fails to Comply with the DPDP Act?

Non-compliance can end up in serious financial penalties, damage to a company’s reputation, and strict actions by the Data Protection Board of India. What’s more, a minor compliance issue can turn into crores of financial damage. 

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