I am new to asp.net and developing a website in Framework 4.0 whereas my hosting company supports Framework 3.5.
Would it create any issue?
Yes, it could. As you may accidentally use features that are not present in 3.5 Thankfully if you are using any of Microsoft's products for developing the website, you can set the target framework in the project settings and thus at each compile it will tell you if you tried to use a feature that is 4.0 only (intellisense, may do this as you code too)
You should always set up your projects to match the version of .NET you are deploying to. You can do this easily by right-clicking your project and clicking Properties. From here, you can change the target framework on the Application tab.
Of course, if you have control over your server, you could always just install .NET 4 and register your applications on the server. This is fairly simple and any errors you experience will usually be easily solvable.
To answer your question, there are quite a few differences introduced in the .NET framework in version 4.0. Since you're new to .NET it's likely that, if you're writing straight C# code that you won't meet any issues when converting your project to 3.5. If you're using Razor then you might get a few issues with the dynamic "type", but again that should be fairly easy to code around if you're not using it as a true dynamic type.
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