Startup valuation report in India: when you need one

Founders often treat the valuation report as a formality the lawyers order near closing. In India it is several different documents, required by different laws and signed by different professionals, and the wrong one can stall a round or an ESOP exercise.

This guide sorts out when you need which report and who can sign it. It explains the rules; a chartered accountant or company secretary should confirm what your transaction needs.

When does a startup need a valuation report?

An Indian startup needs a valuation report when it issues shares to a foreign investor, makes a preferential allotment, issues sweat equity, or values unlisted shares for ESOP tax. Each requirement comes from a different law, so one transaction can need more than one report, from more than one signer.

Purpose	Rule	Who signs	Time limit
Shares or CCPS to a foreign investor	FEMA NDI Rules, RBI Master Direction	CA, SEBI-registered merchant banker or practising cost accountant	No more than 90 days old on the investment date
Preferential allotment to any person	Companies Act, section 62(1)(c)	Registered valuer	The price must rest on the report
Sweat equity shares	Section 54 and rule 8	Registered valuer, for the shares and for the know-how or IP	Allot within 12 months of the resolution
ESOP perquisite on exercise	Income-tax Act, 2025, section 17; Income-tax Rules, 2026, rule 15	SEBI category I merchant banker	Valuation date up to 180 days before exercise
Share swap with a foreign investor	RBI Master Direction	SEBI-registered merchant banker, or a regulated investment banker abroad	None stated; needed whatever the amount

A rights issue to existing shareholders under section 62(1)(a) of the Companies Act, 2013 doesn't carry the registered valuer requirement. A preferential allotment under section 62(1)(c), which is how most priced rounds issue new shares to new investors, does.

Who can sign a startup valuation report?

It depends on the purpose. FEMA pricing accepts a chartered accountant, a SEBI-registered merchant banker or a practising cost accountant. Companies Act valuations need a registered valuer under section 247. ESOP tax valuations for unlisted shares need a SEBI-registered category I merchant banker. A signer qualified for one purpose may not qualify for another.

Section 247 says a valuation required under the Companies Act must be done by a person registered as a valuer and a member of a recognised organisation, appointed by the audit committee or, where there is none, the board. The valuer must make an impartial, true and fair valuation.

For foreign investment, the RBI's Master Direction, updated up to 15 June 2026, sets the price floor for an unlisted company at a fair value worked out by an internationally accepted pricing method on an arm's length basis. The certificate must be no more than 90 days old on the date of investment.

For ESOPs, rule 15 of the Income-tax Rules, 2026 says that when the company is unlisted on the exercise date, fair market value is the value determined by a merchant banker, meaning a SEBI-registered category I merchant banker, on a specified date no more than 180 days before exercise.

One round can need two reports: a FEMA certificate for the foreign cheque and a registered valuer's report for the allotment.

Which valuation methods do startup valuation reports use?

FEMA reports must use an internationally accepted pricing method on an arm's length basis; the Master Direction names none, and discounted cash flow and comparable companies are examples of such methods. For tax checks on shares bought below fair market value, the Income-tax Rules, 2026 prescribe a net asset formula for unquoted equity shares.

For an early-stage startup, cash flow forecasts are thin, so valuers lean on the round itself and on comparable deals. Our guide to valuation methods for early-stage startups explains how investors build a range, and why a report should agree with the term sheet, not the other way round.

Rule 57 of the Income-tax Rules, 2026, as reproduced on taxheal.com, values unquoted equity shares for section 92 with a balance sheet formula: assets less liabilities, with some assets taken at market or stamp duty value, scaled to the paid-up value of the shares. That figure can sit far below a venture price.

What changed after angel tax was abolished?

The tax on share premium above fair market value, under section 56(2)(viib) of the old Income-tax Act, stopped applying from assessment year 2025-26. A startup issuing shares at a premium no longer needs a tax valuation to defend that premium. The other valuation rules stayed, and a buyer-side test remains.

The Budget 2024 memorandum explains that the clause was sunset from 1 April 2025. The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026; our explainer on angel tax in India covers the history.

What remains on the tax side sits with the person receiving property. Section 92(2)(m) of the Income-tax Act, 2025 taxes anyone who receives shares and other property for less than fair market value, where the gap exceeds Rs 50,000. Whether that reaches a fresh allotment is a question for a tax adviser.

How should founders plan valuation reports around a round?

Map every report the round needs as soon as the term sheet is signed, then order them so they are valid on the right dates. The FEMA certificate has a 90-day life, the registered valuer's report must back the special resolution, and any ESOP exercise needs its own merchant banker value.

• List the purposes: foreign investors, preferential allotment, sweat equity, ESOP exercises in the same period.
• Check each signer's eligibility: a registered valuer report may not satisfy the ESOP rule, and vice versa.
• Watch the dates: a slipped closing can push the FEMA certificate past 90 days.
• Keep the reports consistent: different values for the same share on nearby dates invite questions in diligence.
• File them: put every report in the data room with the resolutions it supports.

Sweat equity has its own two-report rule, for the shares and for the know-how or IP received. Our guide to sweat equity shares in India covers it, and section 53 of the Companies Act still bars issuing any other shares below face value, whatever a report says.

Questions

When does a startup need a valuation report in India?

A startup needs one when it issues shares to a foreign investor, makes a preferential allotment under section 62(1)(c) of the Companies Act, issues sweat equity shares, or when employees exercise ESOPs in an unlisted company and the perquisite must be valued for tax. Each purpose has its own rule and signer.

Who can sign a startup valuation report for foreign investment?

For an unlisted company issuing shares to a foreign investor, the RBI's Master Direction accepts a fair value certified by a chartered accountant, a SEBI-registered merchant banker or a practising cost accountant, using an internationally accepted pricing method on an arm's length basis. The certificate must be no more than 90 days old.

Is a valuation report still needed after angel tax was abolished?

Yes, for other laws. The Finance (No. 2) Act, 2024 switched off section 56(2)(viib) from assessment year 2025-26, but FEMA still sets a fair value floor for foreign investors, the Companies Act still needs registered valuers, and ESOP tax still needs a merchant banker's value.

Who values ESOP shares for tax in an unlisted startup?

Under rule 15 of the Income-tax Rules, 2026, the fair market value of an unlisted company's shares on ESOP exercise is the value determined by a SEBI-registered category I merchant banker on a specified date, which can be up to 180 days before the exercise date.

Sources: Reserve Bank of India, Master Direction: Foreign Investment in India, updated up to 15 Jun 2026 · Government of India (India Code), The Companies Act, 2013, sections 53, 54, 62 and 247 · ca2013.com, Rule 8, Companies (Share Capital and Debentures) Rules, 2014, checked 11 Nov 2026 · Ministry of Law and Justice, The Income-tax Act, 2025, Gazette of India, 21 Aug 2025 · CBDT, Income-tax Rules, 2026, rules 15 and 57 (taxheal.com reproduction), notified 20 Mar 2026 · Ministry of Finance, Memorandum Explaining the Provisions in the Finance (No. 2) Bill, 2024, Jul 2024

For more on how startup funding works in India, read the MyStartupValley blog or visit mystartupvalley.com.