Last reviewed: 28 August 2026. "What is my company worth?" has no single answer in India — it has four or five answers, each prescribed by a different law, certified by a different professional, and dated to a different day. Get the wrong one on file and a funding round stalls at the AD bank stage, an ESOP grant gets re-taxed on exercise, or a Section 56 notice lands eighteen months later asking why the issue price wasn't backed by a Rule 11UA report. This guide pulls every trigger, method, signatory and worked number into one reference so you know, before you engage anyone, exactly which valuation you need.
- When is a valuation actually required?
- The valuation methods compared
- Worked example: DCF for a funding round
- Worked example: NAV for an internal share transfer
- Who is legally allowed to sign the report
- Checklist: choosing and briefing a valuer
- Recent development: IBBI's 2026 report standard
- Common mistakes we see
- FAQs
When is a valuation actually required?
A valuation is not a one-time founder exercise — it recurs at every event that moves shares, changes ownership, or crystallises a tax event. The table below maps the common triggers to the governing law and the report you'll need.
| Trigger event | Governing law | Method / route | Typical signatory |
|---|---|---|---|
| Issue of shares to a resident investor above face value | Income-tax Act — Sec 56(2)(viib) angel-tax angle | Not applicable for shares issued on/after 1 Apr 2025 (AY 2026-27) — provision withdrawn for this leg; issue price still needs a defensible FMV basis | CA (NAV) or Merchant Banker (DCF), by practice |
| Transfer of unquoted shares between residents below FMV | Sec 50CA (seller) / Sec 56(2)(x) (buyer) | Rule 11UA / 11UAA | CA (NAV route) |
| Issue or transfer of shares involving a non-resident | FEMA — NDI Rules, 2019 | Any internationally accepted method, incl. DCF | CA, Cat-I Merchant Banker or Cost Accountant |
| Preferential allotment / rights issue | Companies Act, 2013 — Sec 62 read with Rule 13 | Registered Valuer's report | IBBI Registered Valuer |
| Merger, demerger or slump sale | Companies Act, 2013 (scheme) + Income-tax Act | Registered Valuer's report; tax valuation separately if consideration is in question | IBBI Registered Valuer |
| ESOP grant and exercise | Income-tax Rules, Rule 3(8) | Merchant banker FMV, unlisted company | SEBI Cat-I Merchant Banker |
| Minority buyout, exit or family settlement | Companies Act / contractual (SHA) | Registered Valuer or negotiated DCF, per the agreement | IBBI Registered Valuer, typically |
| Insolvency resolution / liquidation | IBC, 2016 | Fair value + liquidation value, per IBBI valuation guidelines | IBBI Registered Valuer(s), coordinated |
| Negotiating a funding round (no statutory filing yet) | Commercial, not statutory | DCF / comparable-companies, informal | Any competent advisor — formal report follows once terms are signed |
The valuation methods compared
Four methods cover almost every Indian valuation assignment. Each is suited to a different stage of company and answers a different question — using the wrong one is the single most common reason a report gets rejected or challenged.
| Method | What it measures | Best suited to | Where it's mandated |
|---|---|---|---|
| Net Asset Value (NAV) | Book value of assets minus liabilities, adjusted for jewellery, artwork and quoted securities at market value | Asset-heavy companies, real-estate SPVs, early-stage companies with no meaningful cash flows yet | Rule 11UA(2)(A)(a) — income-tax default method |
| Discounted Cash Flow (DCF) | Present value of projected free cash flows plus a terminal value, discounted at an appropriate rate | Growth-stage companies with a credible multi-year projection | Rule 11UA(2) for tax (Merchant Banker only); NDI Rules for FEMA (CA allowed) |
| Comparable Companies Multiple (CCM) | Revenue or EBITDA multiples of listed or recently-funded peers | Sector benchmarking, term-sheet negotiation support | Not a standalone statutory method in India; used as a cross-check |
| Cost / Replacement approach | What it would cost to recreate the asset base today | Plant & machinery, real estate under a Companies Act Registered Valuer report | Companies Act asset-class valuations (one of the three IBBI asset classes) |
For the full mechanics of NAV vs DCF vs FEMA pricing, with the underlying Rule 11UA formula spelt out line by line, see our companion guide on startup valuation methods in India and on Rule 11UA, Section 56(2)(x) and FEMA valuation.
Worked example: DCF for a funding round
A Pune-based B2B SaaS company is raising a Series A. Its merchant banker projects free cash flow of ₹40 lakh, ₹95 lakh, ₹1.6 crore, ₹2.4 crore and ₹3.1 crore over the next five years, applies a discount rate (WACC) of 24% reflecting its execution and market risk, and a terminal growth rate of 5% beyond year five.
| Year | Projected FCF (₹) | Discount factor @24% | Present value (₹) |
|---|---|---|---|
| 1 | 40,00,000 | 0.806 | 32,26,000 |
| 2 | 95,00,000 | 0.650 | 61,75,000 |
| 3 | 1,60,00,000 | 0.524 | 83,84,000 |
| 4 | 2,40,00,000 | 0.423 | 1,01,52,000 |
| 5 | 3,10,00,000 | 0.341 | 1,05,71,000 |
Sum of the five present values is roughly ₹3.85 crore. Terminal value (year-5 FCF × 1.05 ÷ (0.24−0.05), then discounted back at 0.341) adds a further ₹5.79 crore, taking enterprise value to approximately ₹9.64 crore before cash and debt adjustments. On a fully-diluted 42,50,000 shares, that implies a per-share value of roughly ₹227 — the floor below which the round cannot be priced if the same figure is also being used to support the FEMA pricing requirement for any non-resident investor in the round. Illustrative numbers only — every assumption (discount rate, growth rate, projection period) is company-specific and must be independently justified in the actual report.
Worked example: NAV for an internal share transfer
A family-run trading company wants to transfer 8% of its equity from a retiring promoter to the next generation. Its balance sheet shows total assets (book value, adjusted for a piece of jewellery held as a corporate asset at market value of ₹18 lakh against a book value of ₹6 lakh) of ₹4.2 crore, and total liabilities excluding paid-up capital and reserves of ₹1.1 crore.
| Component | Amount (₹) |
|---|---|
| Book value of total assets | 4,20,00,000 |
| Add: jewellery revalued to market value (₹18L − ₹6L book) | 12,00,000 |
| Adjusted assets | 4,32,00,000 |
| Less: liabilities (excl. paid-up capital & reserves) | (1,10,00,000) |
| Net assets available to equity | 3,22,00,000 |
| Paid-up equity shares outstanding | 2,00,000 |
| FMV per share (Rule 11UA(2)(A)(a)) | 161.00 |
At 8% of 2,00,000 shares (16,000 shares), the FMV of the block being transferred is ₹25.76 lakh. If the family agrees a transfer price below this — say ₹18 lakh — the shortfall of ₹7.76 lakh exceeds the ₹50,000 threshold and becomes taxable: as capital gains computed on the FMV in the outgoing promoter's hands under Section 50CA, and as income from other sources in the recipient's hands under Section 56(2)(x). Pricing the transfer at or above the computed FMV avoids both exposures entirely.
Who is legally allowed to sign the report
| Route | Who can sign | Governing rule | Report validity |
|---|---|---|---|
| NAV (income-tax) | Practising Chartered Accountant | Rule 11UA(2)(A)(a) | No fixed expiry; use a date close to the transaction |
| DCF (income-tax) | SEBI Category I Merchant Banker only | Rule 11UA(2) | No fixed expiry; use a date close to the transaction |
| Companies Act (allotment, M&A, minority exit) | IBBI Registered Valuer (Land & Building / Plant & Machinery / Securities or Financial Assets) | Sec 247, Companies (Registered Valuers and Valuation) Rules, 2017 | Report date should closely precede the corporate action it supports |
| FEMA (foreign investment pricing) | Practising CA, SEBI Cat-I Merchant Banker or practising Cost Accountant | NDI Rules, 2019, Rule 21 | No fixed expiry; align to the FC-GPR/FC-TRS filing date |
| ESOP fair value (unlisted company) | SEBI Category I Merchant Banker | Income-tax Rules, Rule 3(8) | 180 days from the valuation date |
An IBBI Registered Valuer registration is separate from, and additional to, a CA's ICAI membership or a merchant banker's SEBI registration — holding one does not automatically confer another. Always ask for the specific registration relevant to your transaction, not just a general "we do valuations" answer. Our ESOP plan design guide covers the grant-to-exercise timeline where the 180-day report window most often gets missed.
Checklist: choosing and briefing a valuer
- Identify the trigger event first (tax, Companies Act, FEMA, ESOP, IBC) — the method and the eligible signatory follow from this, not the other way round.
- Confirm the professional's registration matches the route: ICAI membership number for a CA report, SEBI Cat-I registration number for a merchant banker report, IBBI registration number and RVO membership for a Registered Valuer report.
- For a Companies Act valuation, confirm which of the three asset classes (Land & Building / Plant & Machinery / Securities or Financial Assets) the assignment falls under — a valuer registered in one class cannot sign for another.
- Fix the valuation date before the engagement starts, and keep the corporate action (allotment, transfer, exercise) within a reasonable window of that date.
- Prepare the data room in advance: latest audited/provisional financials, cap table, board resolution authorising the valuation, projections (for DCF), prior valuation reports if any, and details of any related-party transactions.
- Ask for the methodology and key assumptions (discount rate, growth rate, comparable set) to be disclosed in the report, not just the final number — this is what survives scrutiny later.
- For ESOP, calendar the 180-day validity against the expected exercise window before relying on the report.
- Keep the engagement letter, the signed report, and the resolution/filing that relied on it together in one file — this is the first thing an assessing officer or ROC scrutiny asks for.
Recent development: IBBI's 2026 report standard
IBBI's June 2026 valuation guidelines (for insolvency and liquidation assignments under the IBC) introduced a standardised 23-point report format across the three asset classes, a mandatory Valuation Report Identification Number on every page, and a "coordinating valuer" framework where fair value of a corporate debtor is built up as the sum of individual asset values plus a synergistic adjustment for intangibles and operational efficiencies. This applies specifically to IBC/insolvency valuations rather than routine Companies Act or income-tax assignments, but it signals the direction regulators are moving in on report quality and documentation generally — a useful reminder to insist on a fully-reasoned report even outside IBC matters.
Common mistakes we see
- Using a CA-signed DCF for a tax filing. Rule 11UA(2) requires a merchant banker for the DCF route — a CA's DCF report, however well-reasoned, does not satisfy this specific clause.
- Pricing a foreign-investor round without checking the FEMA floor. The commercially agreed price and the FEMA-compliant floor price are not always the same number — reconcile them before the FC-GPR filing, not after.
- Letting an ESOP valuation go stale. A report older than 180 days at the exercise date needs to be refreshed; using an old number is a common, avoidable slip.
- Treating a related-party transfer as informal. Family and co-founder transfers below FMV attract Sections 50CA and 56(2)(x) exactly like third-party ones.
- Assuming one report satisfies every law. A Registered Valuer's Companies Act report and a Rule 11UA tax report are governed by different rules — confirm scope before assuming overlap.
Frequently asked questions
Is a valuation report legally compulsory for every private company in India?
No — it becomes compulsory only when a specific trigger event applies: issuing shares above face value to a resident (income-tax angle), any share issue or transfer involving a non-resident (FEMA), a preferential allotment or scheme under the Companies Act, 2013, an ESOP grant, or a merger, demerger or slump sale. A company that only does routine trading or salaried operations, with no share movement, does not need one.
Can a Chartered Accountant sign a DCF valuation report for tax purposes?
No, not for Section 56(2)(viib)/56(2)(x) purposes. Under Rule 11UA(2), the discounted cash flow method for income-tax valuation can only be certified by a SEBI-registered Category I Merchant Banker. A CA can certify the Net Asset Value (NAV) method under Rule 11UA(2)(A)(a), and can also certify FEMA pricing under the NDI Rules, 2019 — but not a tax DCF report.
What is the difference between a Registered Valuer and a Merchant Banker for valuation?
An IBBI Registered Valuer is a separate professional registration under Section 247 of the Companies Act, 2013 (via a Registered Valuers Organisation, in one of three asset classes — Land & Building, Plant & Machinery, or Securities or Financial Assets), required for Companies Act matters such as preferential allotment, mergers, minority buyouts and liquidation. A SEBI-registered Category I Merchant Banker is a different registration entirely, required specifically for income-tax DCF valuations and ESOP fair-value reports. The same person can, in practice, hold more than one registration — but each engagement needs the correct one.
Has angel tax on share premium been abolished?
Yes. Section 56(2)(viib), which taxed a closely-held company on share premium received above fair market value from a resident investor, no longer applies to shares issued on or after 1 April 2025 (AY 2026-27 onward). Valuation is still required to fix a defensible issue price and to support Section 56(2)(x) on the recipient's side where relevant, but the company-level angel tax exposure on the premium itself is gone for these issuances.
How long is an ESOP or merchant banker valuation report valid?
180 days from the valuation date, for the fair market value used to compute ESOP perquisite value on exercise under Rule 3(8) of the Income-tax Rules. If the exercise event falls outside that window, a fresh report is needed — using a report against a later exercise date is a common, avoidable compliance gap.
Which valuation method applies when a foreign investor is buying shares in an Indian company?
FEMA pricing under the Non-Debt Instruments (NDI) Rules, 2019 sets a price floor: for a fresh issue to a non-resident, the price cannot be lower than the fair value; for a transfer from a resident to a non-resident, it cannot be lower than fair value either (and the reverse direction has a price ceiling). Rule 21 of the NDI Rules permits a practising Chartered Accountant, a SEBI-registered Category I Merchant Banker, or a practising Cost Accountant to certify this fair value using any internationally accepted pricing methodology, including DCF — unlike the income-tax route, a CA can sign a DCF-based FEMA valuation.
Do I need a valuation report every time I do a small related-party share transfer?
If unquoted shares change hands between residents below fair market value, Section 50CA (seller side) and Section 56(2)(x) (buyer side) can both apply once the difference from Rule 11UA/11UAA value exceeds ₹50,000. Even a transfer between family members or co-founders should be benchmarked against a computed FMV first — an undocumented "friendly price" is exactly what an assessing officer tests during scrutiny.
What does a valuation report typically cost and how long does it take?
This varies by company size, data readiness and the method required, and depends on the specific engagement — we're not able to quote a figure without seeing the cap table, financials and the triggering event. As a rule of thumb, a straightforward NAV-based report for a small private company can usually turn around faster than a DCF report for a growth-stage business with multi-year projections, which needs more back-and-forth on assumptions.
Can the same valuation report be used for both the Companies Act filing and the income-tax requirement?
Not automatically. Each law specifies its own permitted method and signatory — a Registered Valuer's Companies Act report and a Merchant Banker's Rule 11UA DCF report are prepared under different rules even for the same transaction, though they will often draw on the same underlying financial data. Always confirm with your advisor whether one engagement can be scoped to satisfy both, or whether two separate reports are needed.
We prepare valuation reports and coordinate with registered valuers and merchant bankers across these routes for startups, MSMEs and closely-held companies.
Startup Valuation (Rule 11UA) FEMA Share Valuation ESOP Valuation Advisory Talk to usThis article is for general information and does not constitute valuation, tax or legal advice. Valuation methodology, applicable law and the correct signatory depend on the specific facts of each transaction; please consult us or another qualified professional before relying on any figure or method above for an actual filing or transaction.