Rule 11UA was the rule every Indian share valuation conversation quoted for a decade, and it stopped existing on 1 April 2026, when Rule 57 of the Income-tax Rules, 2026 replaced it. Founders are still asking for “an 11UA report” for transactions where no law now requires one, and they are skipping the reports the law does require.
A share valuation is not one document. Company law, foreign-exchange law and tax law can each require one for the same allotment. Each sets its own rules on method, on timing and on who is allowed to sign. This guide explains which laws apply to your transaction and which professional you need for each.
What Share Valuation Actually Means (and Why One Number Is Rarely Enough)
Share valuation is the process of estimating the value of one share of a company on a specific date, for a specific purpose, under a specific standard of value. The purpose and the standard matter as much as the arithmetic. The same unlisted share can legitimately carry three different values in the same week:
- a fair value under the Companies Act, set by an IBBI Registered Valuer to justify an issue price;
- a fair value on an arm’s-length basis under FEMA, which sets the minimum price at which a non-resident can subscribe;
- a fair market value (FMV) under the Income-tax Act, often computed with a prescribed formula that ignores the business’s growth prospects.
This is why a negotiated round price, say a ₹120 crore pre-money on a term sheet, is not a share valuation in the legal sense. It becomes usable only once the right professional has certified it under each law that applies. Investors’ counsel will check this at diligence, and so will the ROC and your AD bank.
For most private companies, the question is which law is triggering the valuation. Methodology comes after that.
The Triggers: When Indian Law Requires a Share Valuation Report
Companies Act, 2013: Registered Valuer
Section 247 requires a registered valuer wherever the Act requires shares to be valued. The most common triggers for a private company are:
- Preferential allotment under Section 62(1)(c), read with Rule 13 of the Share Capital and Debentures Rules. This covers most priced funding rounds.
- Private placement by an unlisted company under Section 42. The issue price must be justified by a registered valuer’s report.
- Sweat equity under Section 54, and schemes of arrangement under Sections 230–232, where the share exchange ratio needs a valuation.
Buy-backs and capital reductions in unlisted companies are not always strictly mandated, but NCLT, auditors and minority shareholders routinely expect a registered valuer’s report. Our guide to valuation under the Companies Act 2013 covers the filing mechanics.
FEMA: Chartered Accountant, Merchant Banker or Cost Accountant
When shares are issued to, or transferred between, a resident and a non-resident, Rule 21 of the FEM (Non-Debt Instruments) Rules, 2019 applies. For inbound investment the price cannot be below fair value, and for outbound transfers it cannot be above fair value. For an unlisted company, that fair value must use an internationally accepted pricing methodology on an arm’s-length basis. It must be certified by a Chartered Accountant, a SEBI-registered Merchant Banker or a practising Cost Accountant. A registered valuer’s Companies Act report does not replace this certificate. Share swaps are narrower still: they need a SEBI Category I Merchant Banker or an overseas investment banker. The RBI Master Direction on Foreign Investment is the reference text, and our FEMA valuation guide covers it in more depth.
Income-tax: Rule 11UA Valuation Is Now Rule 57
Searches for a Rule 11UA valuation still arrive every week, but from 1 April 2026 the Income-tax Rules, 2026 govern. The old Rule 11UA(1) has moved into Rule 57, which keeps the book-value formula for unquoted equity shares. The DCF option under the old Rule 11UA(2), certified by a merchant banker, existed only for angel tax. It lapsed when Section 56(2)(viib) was abolished, and it was not carried into the new Act.
A merchant banker valuation report is still mandatory in one common case. When an employee exercises ESOPs over unlisted shares, the FMV used for the perquisite must come from a SEBI Category I Merchant Banker. This was old Rule 3(8), carried forward into the 2026 Rules. Our 409A vs Indian FMV guide explains how this works for cross-border ESOPs.
Share Valuation Methods: DCF, Market Multiples and NAV
Whichever law applies, a credible share valuation report considers all three approaches. It uses the ones that fit and explains in writing why it rejected the others.
Income approach (DCF). DCF projects free cash flows and discounts them at a risk-adjusted rate, usually 20–35% for early-stage Indian companies. It is the default for FEMA pricing and for Companies Act valuations of growth companies. Small changes in the assumptions can move the value a lot, as our step-by-step DCF example shows.
Market approach. This benchmarks the company against trading multiples of listed peers (EV/Revenue, EV/EBITDA) or against recent comparable transactions. A company’s own recent funding round is often the strongest market evidence available: the “price of recent investment,” adjusted for time elapsed and for the rights attached to the preference shares issued in that round.
Asset approach (NAV). NAV values the equity as assets minus liabilities, restated where needed. It fits holding companies, asset-heavy businesses and loss-making companies. It is also the income-tax formula under Rule 57 for unquoted equity shares. Because a startup’s value sits mostly in intangibles that are not on its balance sheet, the Rule 57 figure usually comes out far below the round price.
Which method does the law allow?
| Purpose | Methods permitted |
|---|---|
| Companies Act (Section 62, Section 42, schemes) | Any method under the ICAI / IVS valuation standards, with reasons given |
| FEMA (Rule 21, unlisted) | Any internationally accepted method on an arm’s-length basis |
| Income-tax Rule 57 (unquoted equity) | Prescribed NAV formula only |
| ESOP perquisite (unlisted) | Merchant banker’s determination of FMV |
For a practical view of how these methods behave at Seed to Series B, see our startup valuation services.
Who Signs Your Share Valuation Report: A Quick Reference
Most rejected filings come down to the wrong signatory. The work itself is usually fine.
| Transaction | Who must sign |
|---|---|
| Preferential allotment / private placement (Companies Act) | IBBI Registered Valuer (Securities or Financial Assets class) |
| Issue or transfer involving a non-resident (FEMA) | CA, SEBI-registered Merchant Banker, or practising Cost Accountant |
| Cross-border share swap (FEMA) | SEBI Category I Merchant Banker or overseas investment banker |
| ESOP perquisite FMV, unlisted shares (Income-tax) | SEBI Category I Merchant Banker |
| Insolvency: fair and liquidation value (IBC) | Registered Valuers (see our valuation for IBC guide) |
A Series A round with one Indian and one foreign investor therefore usually needs two separate reports on the same shares: a registered valuer’s report for Section 62 and a FEMA pricing certificate. They can use the same model and the same date, but they are legally separate documents that serve different laws.
Five Share Valuation Mistakes That Surface in Diligence
- Commissioning an “11UA report” by habit. Since April 2026 there is no angel-tax DCF test to satisfy. Paying for one while skipping the Companies Act report is the most common mismatch we now see.
- Wrong valuation date. The Companies Act report must support the board resolution approving the issue, and the FEMA certificate must be close to the allotment date. A report dated after the resolution, or one that is months old, will be questioned.
- One method, no reasoning. Reports that apply only DCF without explaining why the market and asset approaches were rejected are the ones auditors and acquirers challenge.
- Ignoring preference-share rights. Applying the round price to ordinary equity without adjusting for liquidation preferences overstates the value of common stock and of ESOPs.
- Unverified signatory. Check a registered valuer on the IBBI public register, and a merchant banker on SEBI’s list of intermediaries, before you sign an engagement letter.
Get the Right Share Valuation, From the Right Professional
Share valuation in India is several legal requirements that happen to produce numbers. If you commission the wrong report, you usually have to redo the filing against a deadline you cannot move.
FinVal Research & Consultancy is a Delhi-based advisory firm led by IBBI Registered Valuers. We work with founders, promoters and CFOs on business valuation, ESOP valuation and transaction advisory. Try our free business valuation tool for an instant indicative range, or book a free consultation and we will tell you which reports your transaction needs before you pay for any of them.