Quick Answer
The report you need is fixed by the law that triggers it, not by the method. Companies Act (preferential allotment, ESOP, sweat equity, section 230/232 schemes): IBBI Registered Valuer under section 247. FEMA: for inbound transactions where the NDI pricing rules require a certificate, use an eligible CA, SEBI-registered merchant banker or practising cost accountant and check the 90-day limit on the investment date. ODI follows its separate arm’s-length pricing and AD-bank process. Income-tax: section 56(2)(viib) does not apply from assessment year 2025-26 (shares issued in previous year 2024-25 onwards), so the angel-tax valuation under rule 11UA(2) is gone; the investor's section 56(2)(x) test and the seller's section 50CA test use the rule 11UA net-asset FMV, which is a formula; the ESOP perquisite on unlisted shares needs a merchant banker's FMV (rule 3(8)(iii) of the 1962 Rules; rule 15(6)(d) of the Income-tax Rules, 2026 for options exercised in tax year 2026-27 onwards). Ind AS 102: fair value of the option at grant date, usually Black-Scholes or binomial on an equity value that must be the grant-date value, not a later round price. CIRP: two Registered Valuers under regulation 27, a third under regulation 35 if the two estimates differ materially. Method follows the business: DCF where there are cash-flow drivers to model, market multiples where there are comparables and revenue, NAV only as a floor or for asset-holding companies, and early-stage methods (scorecard, venture-capital, first-Chicago) as cross-checks for pre-revenue companies. One report can carry several conclusions for several laws if it is scoped that way at engagement.
Reviewed: 4 November 2026 | Law: Companies Act, 2013 (ss. 62(1)(b), 62(1)(c), 247); Companies (Registered Valuers and Valuation) Rules, 2017; Companies (Share Capital and Debentures) Rules, 2014 (rules 8, 12, 13); Income-tax Rules, 1962 (rules 3(8)(iii), 11UA, 11UAE); Income-tax Rules, 2026 (rule 15(6)(d)); Income-tax Act (ss. 2(22)(f), 47, 50B, 50CA, 56(2)(x), 72A); FEM (Non-Debt Instruments) Rules, 2019 (rule 21); FEM (Overseas Investment) Rules, 2022; IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (regs. 27, 35); Ind AS 102; IRC §409A (US) | Author: CA V. Viswanathan, FCA, ACS, CFE, IBBI Registered Valuer (IBBI/RV/03/2019/12333)
These are seventeen valuation questions founders, CFOs and investors' counsel bring to us, answered first with the statutory basis after. The companion guide on the first foreign CCPS round covers the closing sequence; this one covers the valuation choices themselves.
Answer: DCF is the more defensible primary method when the company has three or more years of financials, identifiable cash-flow drivers (volume, price, margin, working-capital cycle, capex) and a management plan that can be tested line by line. Market multiples are more defensible when there are genuinely comparable listed companies or disclosed transactions in the same segment and size band — in India that is true for a few sectors (IT services, pharma, auto components, hospitality) and untrue for most SMEs, where the "comparables" are ten times larger and the multiple has to be discounted so heavily that it stops being evidence. NAV is defensible only where the value is in the assets (real estate, holding companies, companies winding down) — for an operating SME it is a floor. For a minority stake, the method question is followed by two discounts the buyer's adviser will raise: a discount for lack of control, and a discount for lack of marketability; we quantify the latter with an option-pricing model (Chaffe) rather than a round percentage, and state both separately so the negotiation is about the inputs, not the conclusion. A report that shows the DCF, the multiples cross-check and the NAV floor side by side, with weights, is the form in which the buyer's adviser can test it.
Answer: Not by NAV, and not by a bare DCF either. Pre-revenue value lies in the probability-weighted outcome of the technology, so the methods that work are the ones built for that: the venture-capital method (exit value at a target year, discounted at a venture rate, adjusted for expected dilution), first-Chicago (success / sideways / failure scenarios, each with a DCF, weighted), scorecard or Berkus for the earliest stage, and a recent arm's-length transaction if there is one. We run the DCF inside a Monte Carlo on the drivers that matter for deep-tech — time to first revenue, probability of technical success, capital required to reach it — so the report shows a distribution and a point estimate rather than one spreadsheet. The number the investor negotiates is still a negotiation; the report's job under the Companies Act and FEMA is to establish that the issue price is not below a reasoned fair value, and to document the reasoning so that it holds up when the next round's counsel reads it.
Answer: Any internationally accepted methodology on an arm's-length basis, certified by a CA, merchant banker or Cost Accountant — rule 21 of the NDI Rules names no method. For a priced equity or CCPS round the certificate usually rests on a DCF anchored by the round itself as a recent arm's-length transaction, with a market-multiples cross-check where comparables exist. The US investor's own diligence will separately want a report it can read in its own terms; a report that states the equity value, the per-share price, the CCPS conversion mechanics and the fully diluted cap table (including the ESOP pool) satisfies both. If the US investor's structure also needs a 409A-style view for its own books, that is a different question (see Q29) and should not be mixed into the FEMA certificate.
Answer: Get it at the first grant, not before the round. Ind AS 102 requires the fair value of the option at the grant date, so every grant needs a grant-date value; if the company adopts Ind AS later or its auditor requires share-based payment accounting, grants made without a contemporaneous value have to be valued retrospectively, and a retrospective value made after a priced round is the valuation investors' auditors distrust most (see Q20). The Companies Act side is separate and runs from the same date: section 62(1)(b) and rule 12 require a special resolution and permit grants only to employees and directors (not consultants or advisers under the ESOP route), and the exercise price is set by the company — but a price below fair market value creates a perquisite at exercise (Q24). A small company without an Ind AS obligation that grants under a scheme can still obtain the grant-date value as a one-page addendum to the Registered Valuer report it needs for the scheme; the cost is in the model, not the addendum.
Answer: The round price is evidence of value at the round date; Ind AS 102 wants the fair value of the option at the grant date. If the grants were weeks before the round and nothing material happened between, the auditor may accept the round price as the best evidence of grant-date equity value, with a note on why. If months passed, or the round was a step-up on new traction, a separate grant-date valuation is required, and it should explain the bridge between the grant-date value and the round price — milestones achieved, cash raised, risk reduced. Two further points the auditor will ask: the round price is a preference-share price with liquidation preference and anti-dilution rights, so the equity value behind an ordinary-share option is lower — an option-pricing or probability-weighted allocation across the share classes is the method; and the option's fair value under Ind AS 102 is the Black-Scholes or binomial value on that equity value, not the equity value itself. The auditor's evidence request is usually the grant schedule, the scheme, the board minutes, the cap table by class and the valuer's workings.
Answer: Do not reuse it, and do not try to reconcile it silently. A lower price in a new round (a down round) means the prior report's assumptions did not hold; the new round's report should say so — which projections changed, what the market did, what the company achieved or did not — and value the business afresh. Three consequences to manage: anti-dilution clauses in the prior round's CCPS convert on the new price and change the cap table before the new investor's percentage is computed; the FEMA floor for a non-resident subscriber is the current fair value, so a down round is permissible as long as the new price is not below it; and ESOP grants made at the old price now sit above fair value, which is an accounting question (no reversal under Ind AS 102, but a repricing is a modification) rather than a tax one. Changed terms without a changed price — new liquidation preference, a ratchet — alter the value of the instrument even when the headline price is the same, and the report should value the instrument, not just the share.
Answer: At the company level, nobody — section 56(2)(viib) (angel tax) does not apply from assessment year 2025-26, i.e. shares issued in previous year 2024-25 onwards (Finance (No. 2) Act, 2024), so a premium above fair value is no longer income of the company. For allotments up to 31 March 2024 the old rule 11UA(2) test still governs any open assessment. The investor is tested under section 56(2)(x) only if it pays less than the rule 11UA FMV, which for unlisted equity is the net-asset formula in rule 11UA(1)(c)(b); paying more than FMV creates no tax for the investor. Under FEMA the rule is a floor, so a higher price is in order. The report should therefore not be "adjusted" to meet the round price; it should state fair value by method, note the round price as a recent arm's-length transaction and explain the gap (strategic value, control, synergies, a competitive process). The gap matters later for two things: impairment testing of the investor's holding, and the next round's negotiation.
Answer: The Companies Act report is the company's: section 62(1)(c) and rule 13 require the board to place a Registered Valuer's report before the members, so the company engages and pays. The FEMA certificate is also addressed to the company for the FC-GPR. Who funds it does not determine independence; what does is the engagement letter (scope, purpose, no success fee), the valuer's declaration of no interest, the management representation letter, and a report that documents data, methods and weights so that a reader can retrace it. The IBBI Valuation Standards and the Registered Valuers Rules bind the valuer regardless of who pays, and the valuer's file is open to IBBI inspection. If the investor insists on its own valuer, let it — two independent reports that land close together are the strongest evidence of all.
Answer: At exercise, the difference between the fair market value of the shares on the exercise date and the exercise price is a perquisite in the employee's hands under section 17(2)(vi), and the company must withhold tax on it. For shares not listed on a recognised stock exchange on the exercise date, the FMV must be determined by a SEBI Category I merchant banker on the specified date (the exercise date, or a date not more than 180 days earlier). Which rule applies depends on when the option is exercised: up to 31 March 2026 (assessment year 2026-27 and earlier), rule 3(8)(iii) of the Income-tax Rules, 1962 read with section 17(2)(vi) of the 1961 Act; from 1 April 2026 (tax year 2026-27 onwards), rule 15(6)(d) of the Income-tax Rules, 2026 read with section 17(1)(d) of the Income-tax Act, 2025. A Registered Valuer's report satisfies neither — this is the one place in the startup stack where the merchant banker is still mandatory. (Rules 40C and 40D were the fringe-benefit-tax rules of 2007 and are not the provision for the employee's perquisite.) For eligible start-ups (section 80-IAC), section 192(1C) defers the withholding to the earliest of five years from the end of the relevant year, sale of the shares, or the employee leaving. Setting the exercise price at or above FMV at grant removes the perquisite at exercise only if FMV does not rise; it usually does, so budget for the merchant banker's certificate at each exercise window.
Answer: A convertible note under the Companies Act and FEMA is defined by its own rule — issued by a DPIIT-recognised start-up, minimum ₹25 lakh in a single tranche, convertible or repayable within ten years (rule 2(1)(c) Deposit Rules; NDI Rules definition). No valuation is needed at issue because no shares are issued; the valuation happens at conversion, and the conversion price must satisfy the FEMA floor at the date of conversion for a non-resident holder. The note is reported on Form CN within 30 days of issue, and the conversion on FC-GPR within 30 days of allotment. A SAFE has no Indian statutory form; in India it is either drafted to be a convertible note (and must meet the ₹25 lakh/ten-year rule) or it is not a permitted instrument for a non-resident at all. The practical trap is a discount or valuation cap that produces a conversion price below the fair value at conversion — that is a FEMA contravention at conversion, so the cap must be drafted as "the higher of the cap price and fair value".
Answer: Four, in this order: (1) the conversion mechanics — discount, cap, and which round triggers conversion; make sure the cap cannot produce a price below FEMA fair value if the incubator is foreign-funded or any future noteholder is non-resident; (2) most-favoured-nation — whether the incubator gets the best terms given to any later noteholder, and whether that includes the matched investor's information and consent rights; (3) information and consent rights — a noteholder with a veto over the next round's terms is a problem for the next lead; cap consent rights at the matters that affect the note; (4) maturity and repayment — a note that is repayable in cash at maturity is a liability on the balance sheet and must fit the ten-year statutory limit. Resolve the acceptance window last; an incubator that will not extend a week to settle conversion mechanics is telling you something.
Answer: Under the FEM (Overseas Investment) Rules and Regulations, 2022, an Indian entity or resident individual making an overseas direct investment by subscription to a foreign entity's shares must pay a price that the AD bank is satisfied is at arm's length under the pricing guidelines in the OI Regulations; the bank will generally ask for a valuation by a CA, SEBI merchant banker or a valuer registered with the host-country regulator (the RBI's OI Directions leave the bank discretion on when to insist on one), and for Form FC with the ODI declarations. Confirm with the bank first: whether the investment is ODI or OPI (portfolio, less than 10% and no control) because the forms and the valuation requirement differ; whether the foreign entity is engaged in a permitted activity (financial services and real estate are restricted); whether the Indian entity has any pending FEMA compounding; and the UIN process. Commission a valuation that values the foreign company's shares at the subscription date — a DCF on the US company's own projections, with comparables — and have it address the Indian remitter, because the bank's question is whether the Indian party is paying a fair price, not whether the US company is worth it.
Answer: Regulation 27 of the CIRP Regulations requires the resolution professional to appoint two Registered Valuers within 47 days of the insolvency commencement date to determine fair value and liquidation value. Regulation 35 provides that if the two estimates are "significantly different", the RP may appoint a third valuer, and the average of the two closest estimates is taken as the fair value or liquidation value. The regulations do not define "significantly different" — the RP records the reason in the committee minutes. Each valuer values the asset classes it is registered for (land and building; plant and machinery; securities or financial assets), so a corporate debtor with all three needs valuers (or a valuer entity) across the classes. The values are shared with committee members only after the resolution plans are received, under confidentiality — they are not disclosed to prospective applicants.
Answer: The 409A valuation is the US parent's, by an independent appraiser under the US safe-harbour, and it values the parent's common stock; an Indian Registered Valuer does not sign it, though the Indian subsidiary's own DCF is usually an input. What the Indian side still needs: (1) the Indian employees' perquisite at exercise under section 17(2)(vi) — for foreign stock not listed on a recognised Indian stock exchange, the same merchant-banker FMV on the exercise date applies (rule 3(8)(iii) of the 1962 Rules, or rule 15(6)(d) of the 2026 Rules for exercises from 1 April 2026); (2) the recharge arrangement between parent and subsidiary, which is a transfer-pricing matter (the subsidiary's cost base for its service fee usually includes the stock-based compensation) and, if the subsidiary pays the parent, an outward remittance the bank processes under the ESOP provisions of the OI Rules; (3) if the parent is a start-up relying on the illiquid-start-up presumption under the 409A regulations, the Indian round or a change in control within 90 days of a grant, or an IPO within 180 days, breaks that presumption. Keep the 409A report, the Indian merchant banker's certificate and the recharge agreement in one file; the auditor and the TP officer will each ask for all three.
Answer: Three values can be in play and they are not the same number. (1) The contract value — what the shareholders' agreement says (good-leaver/bad-leaver clauses, often a discount to the last round or to fair value); that is what is paid. (2) The tax floor for the seller — section 50CA: if unquoted shares are transferred for less than the rule 11UA FMV, the FMV is deemed the full value of consideration for the seller's capital gains. (3) The tax floor for the buyers — section 56(2)(x): if the buyers receive shares for less than the rule 11UA FMV by more than ₹50,000, the shortfall is their income from other sources. Rule 11UA FMV for unquoted equity is the net-asset formula in rule 11UA(1)(c)(b), which for a loss-making start-up is often far below the last round price — so a bad-leaver price at book value may be above the tax FMV and create no tax at all, while a transfer at the last round price creates none either because the test only bites on under-payment. If a non-resident is on either side, FEMA adds the rule 21 pricing test (not above fair value when a resident buys from a non-resident; not below when a non-resident buys) and FC-TRS within 60 days. If the company buys back instead, the section 68 limits of the Companies Act apply (25% of paid-up capital and free reserves, debt-equity 2:1, SH-8/SH-9/SH-11), and from 1 October 2024 the buy-back consideration is taxed in the shareholder's hands as deemed dividend under section 2(22)(f), with the cost of the shares allowed as a capital loss. A Registered Valuer report is statutory where the company buys back or issues shares in the same exercise; for a founder-to-founder transfer it is not, but it is what the auditor and the next investor will ask for.
Answer: No. Under section 50B(2)(ii), the fair market value of the capital asset (the undertaking) on the date of transfer, computed in the prescribed manner, is deemed to be the full value of consideration. Rule 11UAE(2) prescribes that FMV as the higher of FMV1 and FMV2: FMV1 is the value of the undertaking's assets less its liabilities on the rule's formula (book value for most assets; stamp-duty value for immovable property; rule 11UA values for shares and securities, and a registered valuer’s open-market estimate for jewellery and artistic work; with the liability adjustments the rule specifies), and FMV2 is the value of the consideration received — monetary consideration plus non-monetary consideration valued as the rule prescribes. The actual price therefore enters only through FMV2; the test is FMV1 against FMV2, not price against a separate FMV. The cost of acquisition is the net worth of the undertaking under section 50B(2), and the accountant's report in Form 3CEA must be furnished. The commercial valuation (DCF of the division) decides the price; rule 11UAE decides the tax floor; they are reported separately and the report should not blend them. GST: a transfer of a business as a going concern is exempt (Notification 12/2017-Central Tax (Rate), entry 2) provided what passes is the whole business or an independent part capable of being carried on; itemised asset sales are not. Stamp duty on the business transfer agreement is state-specific and, where immovable property passes, is on the conveyance.
Answer: A valuation report by a Registered Valuer is filed with the scheme application (section 230(2)(c)(v); the report also accompanies the notice of the members' and creditors' meetings under section 230(3) and the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016), and the Tribunal, the Regional Director and the ROC each read it. It must state: the valuation date; the methods applied to each company and the weights (the usual practice is to value both companies on the same methods — NAV, market or comparable multiples, DCF — and weight them identically, with a reason wherever the weights differ); the per-share values and the resulting exchange ratio; the treatment of cross-holdings, preference shares, ESOPs and convertibles; and the valuer's independence declaration. For an unlisted group merger the value itself is often not contested — the exchange ratio is — so the report should show the sensitivity of the ratio to the main assumptions. If either company is listed, SEBI's scheme framework adds a fairness opinion from a merchant banker and the stock-exchange no-objection. Tax neutrality under section 47(vi)/(vii) and carry-forward of losses under section 72A have their own conditions (shareholders holding three-fourths in value becoming shareholders of the amalgamated company; continuity of business) that the scheme, not the valuation, must satisfy.
Tell us the trigger (round, ESOP grant, exercise, conversion, ODI, scheme, audit), the instrument, whether any party is non-resident, and the date the number is needed. We confirm which report and which signer, what one report can and cannot cover, the data we need and the turnaround.
Ask which valuation report you need
Sources: Companies Act, 2013 — sections 17, 62(1)(b), 62(1)(c), 247; Companies (Registered Valuers and Valuation) Rules, 2017; Companies (Share Capital and Debentures) Rules, 2014 — rules 8, 12, 13; Companies (Acceptance of Deposits) Rules, 2014 — rule 2(1)(c)(xvii) (convertible notes); Income-tax Act, 1961 — sections 2(22)(f), 17(2)(vi), 47, 50B, 50CA, 56(2)(x), 72A, 80-IAC, 192(1C); Companies Act, 2013 — sections 68, 230–232; Companies (Compromises, Arrangements and Amalgamations) Rules, 2016; Notification 12/2017-Central Tax (Rate), entry 2; Income-tax Rules, 1962 — rules 3(8)(iii), 11UA, 11UAE; Income-tax Rules, 2026 — rule 15(6)(d); Income-tax Act, 2025 — section 17(1)(d); Finance (No. 2) Act, 2024 (section 56(2)(viib) withdrawal); FEM (Non-Debt Instruments) Rules, 2019 — rule 21 and definitions; FEM (Overseas Investment) Rules and Regulations, 2022; IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 — regulations 27 and 35; Ind AS 102 Share-based Payment; ICAI Valuation Standards; US Treasury Regulations §1.409A-1(b)(5)(iv)(B).
A Registered Valuer report under section 62(1)(c) of the Companies Act and rule 13 for any preferential allotment; a FEMA pricing certificate under rule 21 of the NDI Rules (CA, merchant banker or Cost Accountant) if any subscriber is non-resident. No merchant-banker angel-tax valuation under rule 11UA(2) is needed, because section 56(2)(viib) does not apply from assessment year 2025-26 (shares issued in previous year 2024-25 onwards).
Only as evidence of grant-date value if the grant was close to the round with nothing material between. Otherwise a separate grant-date valuation is needed, and the round's preference-share price must be allocated across share classes before the option is valued by Black-Scholes or binomial.
A SEBI Category I merchant banker, on the exercise date or a date not more than 180 days earlier: rule 3(8)(iii) of the Income-tax Rules, 1962 for options exercised up to 31 March 2026, and rule 15(6)(d) of the Income-tax Rules, 2026 for options exercised from 1 April 2026. A Registered Valuer's report does not satisfy either rule; rules 40C/40D were fringe-benefit-tax rules and do not apply.
At the company level, no — section 56(2)(viib) does not apply from assessment year 2025-26 (shares issued in previous year 2024-25 onwards). The investor is tested under section 56(2)(x) only if it pays less than the rule 11UA net-asset FMV; FEMA treats fair value as a floor.
At conversion, not at issue. The note (minimum ₹25 lakh per tranche, convertible or repayable within ten years) is reported on Form CN; the conversion price must meet the FEMA floor at the conversion date for a non-resident holder.
Regulation 35 of the CIRP Regulations lets the resolution professional appoint a third Registered Valuer when the two estimates under regulation 27 are significantly different; the average of the two closest estimates is then taken.