Business Valuation in India: Methods, Use Cases and What Every Owner Must Know
A plain-English guide to the three valuation approaches, when Indian law requires a valuation, who may sign it and how to prepare.
Business valuation in India estimates what a company, business or its shares are worth on a specific date, for a specific purpose. Valuers use three approaches recognised in ICAI’s Valuation Standards: the income approach, chiefly discounted cash flow (DCF); the market approach, based on comparable companies or transactions; and the cost or asset approach, based on net asset value. Owners need a valuation for fundraising, mergers, share transfers, exits and succession, and Indian law often requires one: the Companies Act for preferential allotments, mergers and certain related-party deals; FEMA for share issues and transfers involving non-residents; income-tax rules for unquoted share transfers; and the IBC in insolvency. Who can sign the report, and which method applies, depends on the law in question. The Income-tax Rules, 2026, in force from 1 April 2026, renumbered the old Rule 11UA as Rule 57. This guide from CA Nainit Savla, Chartered Accountants in Mumbai, explains the methods, the use cases and how to prepare.
- Three approaches: income (DCF), market (comparables) and cost or asset (NAV); most reports use more than one.
- Companies Act valuations must be done by an IBBI registered valuer.
- FEMA: unlisted shares to non-residents at not less than fair value, certified by a CA, SEBI-registered merchant banker or practising cost accountant.
- Angel tax under section 56(2)(viib) no longer applies from AY 2025–26; Rule 11UA is now Rule 57 under the 2026 Rules.
- Purpose and valuation date drive the method, the signatory and the result.
What Are the Main Valuation Methods?
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| Approach | Common methods | Best suited to |
|---|---|---|
| Income approach | Discounted cash flow (DCF); relief from royalty and excess earnings for intangibles; option pricing models | Profitable or growing businesses with reliable projections; startups when supported by market evidence |
| Market approach | Market price; comparable listed companies (multiples such as EV/EBITDA, P/E); comparable transactions | Businesses with listed peers or recent comparable deals and funding rounds |
| Cost / asset approach | Net asset value (NAV); replacement or reproduction cost | Asset-heavy, holding or investment companies, loss-making businesses, liquidation scenarios |
ICAI Valuation Standards, effective from 1 July 2018, set out these approaches in Valuation Standard 103 and apply to valuations under the Companies Act, 2013, while being recommendatory for valuations under other laws. A good report explains why each method was chosen, the key assumptions such as growth and discount rates, and how the results were weighed.
How does DCF work?
DCF projects the business’s free cash flows over a forecast period, usually five years, estimates a terminal value for the years after that, and discounts both to today using a rate that reflects the cost of capital and risk. Because the result depends heavily on projections, growth and discount rates, valuers typically test sensitivities and cross-check against market multiples.
When Does Indian Law Require a Valuation?
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| Law | Common triggers | Who signs |
|---|---|---|
| Companies Act, 2013 | Further issue of shares on a preferential basis (section 62(1)(c)); non-cash transactions with directors (section 192); compromises, arrangements, mergers and amalgamations (sections 230–232); purchase of minority shareholding (section 236) | Registered valuer registered with IBBI (section 247 and the 2017 Registered Valuers Rules) |
| FEMA (Non-debt Instruments) Rules, 2019 | Issue or transfer of shares of an unlisted company to a non-resident (not less than fair value); transfer from non-resident to resident (not more than fair value). Read our guide to FEMA compliance for Indian startups for the filings that follow. | Chartered Accountant, SEBI-registered merchant banker or practising cost accountant (for unlisted companies) |
| Income-tax Act, 2025 and Income-tax Rules, 2026 | Receipt or transfer of unquoted shares below fair market value (Rule 57, formerly Rule 11UA) | Prescribed formula for unquoted equity; for some securities, a CA or SEBI Category I merchant banker report |
| Insolvency and Bankruptcy Code, 2016 | Fair value and liquidation value in insolvency; voluntary liquidation; asset sales in liquidation | Registered valuers |
| SEBI regulations | Pricing of listed company issues, buy-backs and open offers | As specified by SEBI |
What Changed for Tax Valuations in 2024–2026?
Angel tax removed
The Finance (No. 2) Act, 2024 made section 56(2)(viib) of the Income-tax Act, 1961, the “angel tax” on share premiums above fair value, inapplicable from assessment year 2025–26. Share issues from FY 2024–25 onward no longer face that charge, but earlier years can still be reassessed, and the genuineness and source of investment can still be examined under other provisions.
New Act and Rules from 1 April 2026
The Income-tax Act, 2025 and the Income-tax Rules, 2026 took effect on 1 April 2026. According to practitioner commentary, the old Rule 11UA is now Rule 57 and works with the new provisions that replace sections 56(2)(x), 50CA and 28(via). For unquoted equity shares, the rule applies an adjusted net-asset formula, and the earlier DCF option is no longer available for those purposes. Quoted shares follow a market-price waterfall. For how the new Act affects your wider tax position, read our guide to tax planning for SMEs in Mumbai.
Which Business Situations Call for a Valuation?
Fundraising
Setting the issue price and supporting FEMA compliance where investors are non-resident. See how to register a private limited company before you raise.
Mergers, demergers and acquisitions
Swap ratios, purchase price and scheme approvals.
Share transfers and buy-outs
Partner exits, minority buy-outs and family transfers.
ESOPs
Grant pricing and, for employees, the taxable perquisite value on exercise.
Financial reporting
Fair value measurement, purchase price allocation and impairment testing under Ind AS.
Succession and family settlements
Agreeing fair value among family members.
Disputes and insolvency
Shareholder disputes, arbitration and IBC processes.
Transfers of shares can also carry tax at source on any dividends and gains; see our guide to TDS on dividends for how distributions are taxed.
What Should Owners Know Before Commissioning a Valuation?
- Define the purpose and law first; it decides the method, the signatory and the format.
- Fix the valuation date and check how long the report can be relied on for your transaction.
- Prepare three to five years of audited financials, current management accounts and the shareholding pattern.
- Build realistic projections with documented assumptions; aggressive forecasts invite challenge.
- Gather information on comparable companies or recent funding rounds, if any.
- List non-operating assets, contingent liabilities and related-party arrangements that affect value.
- Check the valuer’s registration: IBBI registration for Companies Act work, and the right professional for FEMA or tax purposes.
- Keep the report and working papers; tax and regulatory authorities may ask for them later.
What Should Owners Watch Into 2027?
Watch for clarifications and case law under the Income-tax Act, 2025 and Rule 57 as the first assessments under the new law begin; any revision of ICAI or IBBI valuation standards; changes to FEMA pricing rules for investments from countries sharing a land border with India and for convertible instruments; and SEBI and MCA consultations on valuation requirements for unlisted companies.
Frequently Asked Questions About Business Valuation in India
What are the main methods of business valuation in India?
Valuers use three broad approaches, set out in ICAI Valuation Standard 103: the income approach (mainly discounted cash flow), the market approach (comparable listed companies, comparable transactions or market price) and the cost or asset approach (net asset value, replacement or reproduction cost). Valuers often apply more than one approach and explain how they weigh the results.
When is a business valuation legally required in India?
Common triggers include issuing shares on a preferential basis, mergers and schemes of arrangement, non-cash transactions with directors and purchase of minority shareholdings under the Companies Act; issuing or transferring shares between residents and non-residents under FEMA; transfers or receipts of unquoted shares under income-tax rules; and insolvency processes under the IBC.
Who can sign a valuation report?
It depends on the law. Valuations required under the Companies Act must be done by a registered valuer registered with the Insolvency and Bankruptcy Board of India (IBBI). Under FEMA pricing rules for unlisted companies, a Chartered Accountant, SEBI-registered merchant banker or practising cost accountant can certify fair value. Income-tax rules specify their own methods and, for some securities, permit reports from a Chartered Accountant or SEBI Category I merchant banker.
Is angel tax still applicable to startups?
No, for new share issues. The Finance (No. 2) Act, 2024 made section 56(2)(viib) of the Income-tax Act, 1961 inapplicable from assessment year 2025–26. Older years can still face scrutiny, and the genuineness and source of investment can still be examined under other provisions. Our Startup India page covers recognition and incentives.
How did the Income-tax Rules, 2026 change share valuation?
The Income-tax Rules, 2026, which took effect on 1 April 2026 alongside the Income-tax Act, 2025, renumbered the old Rule 11UA as Rule 57. According to practitioner commentary, unquoted equity shares are valued under a single adjusted net-asset formula for the relevant provisions, and the earlier DCF option is no longer available for those purposes. Check the notified text for your transaction.
What are the FEMA pricing rules for unlisted shares?
Under the FEMA (Non-debt Instruments) Rules, 2019, shares of an unlisted Indian company issued or transferred to a non-resident must be priced at not less than fair value, determined by an internationally accepted pricing methodology on an arm's length basis. When a non-resident transfers to a resident, the price must not exceed fair value. See our guide to FEMA compliance for Indian startups for the related filings.
Which valuation method is best for a startup?
Early-stage companies with little profit history are usually valued using the income approach (DCF on projections) and market evidence from comparable funding rounds, with the asset approach giving a floor. The right mix depends on purpose: a FEMA certificate, a funding negotiation and an income-tax valuation can each require different methods.
What documents does a valuer need?
Typically audited financial statements for three to five years, the latest management accounts, business plan and projections with assumptions, the shareholding pattern and capital structure, details of material contracts, assets and liabilities, and information on the purpose and date of valuation.
How long is a valuation report valid?
A valuation speaks as of a specific valuation date and can become outdated as facts change. Some regimes set limits in practice; for example, practitioner guidance on FEMA reporting states that the valuation certificate should not be more than 90 days old at the date of allotment or transfer. Check the requirement for your transaction.
Can owners use a valuation for succession or family settlements?
Yes. Valuations are commonly used for succession planning, family settlements, partner exits and dispute resolution. Even when no law requires one, an independent valuation using recognised standards helps all parties agree a fair value and supports the tax position.
CA Nainit Savla
CA Nainit Savla is a Chartered Accountant practising in Mumbai and Hyderabad, advising businesses on tax, audit, GST, company law, FEMA and NBFC compliance.
Planning a Valuation for Your Business?
CA Nainit Savla, Chartered Accountants, Mumbai, advises on tax, company law and FEMA matters. For questions, contact info@canainitsavla.com or +91 98218 32683, browse our services, or visit our contact page.