Which Business Valuation Methods Apply in India?
Last updated: 26 October 2026
Quick Answer: Three business valuation methods apply in India: income (DCF), market (comparables) and asset (net asset value). The law decides which counts: tax Rules 11UA and 57 fix a formula for unquoted equity, FEMA a certified arm's length floor or ceiling for unlisted shares on a repatriation basis, company law a registered valuer. HSAG Consulting's M&A advisory lists business valuations.
Business valuation in India is the process of fixing what a company or its shares are worth on a given date. Business valuation methods in India are set partly by professional practice and partly by statute. The Income-tax Act, 1961 or 2025 sets the tax value, FEMA sets the price a foreign investor pays or receives, and the Companies Act, 2013 sets who values for corporate actions.
What are the three main approaches to business valuation?
ICAI Valuation Standard 103, which applies to valuation reports issued on or after 1 July 2018, sets out the valuation approaches and the methods under each, from discounted cash flow to comparable company multiples. For a business, three are common:
- Income approach (DCF). A discounted cash flow model estimates the cash the business will earn in future years and converts it into one value today. It suits a fundraise or the sale of a growing company.
- Market approach. Comparable company multiples price the business from what similar listed companies trade at, and precedent transactions from what buyers paid in similar deals. It suits a sale or merger.
- Asset approach (net asset value). It adds up what the business owns and subtracts what it owes, using the accounts. It suits holding companies, asset-heavy businesses and many tax computations.
Indian law picks the method, the valuer or both for tax, FEMA and Companies Act purposes, and the table below sets out the share valuation methods each law accepts.
| Valuation method | Where it applies | Rule and source | Who values |
|---|---|---|---|
| Net asset value formula, (A + B + C + D - L) x PV/PE | Unquoted equity shares received for less than fair market value (section 56) or transferred below it (section 50CA, Rule 11UAA), FY 2025-26 and earlier | Rule 11UA(1)(c)(b), Income-tax Rules, 1962 | The formula; a registered valuer reports on jewellery and artistic work held |
| The same formula | Sections 26(2)(j), 72 and 92 of the Income-tax Act, 2025, from tax year 2026-27 | Rule 57 (Sl. No. 4), Income-tax Rules, 2026 | As above |
| Open market price | Unquoted shares other than equity shares, such as preference shares | Rule 11UA(1)(c)(c); Rule 57 (Sl. No. 5) | Report from a merchant banker or an accountant, at the assessee's option |
| Any internationally accepted pricing methodology, on arm's length basis | Issue or transfer of equity instruments of an unlisted company to or from a person resident outside India, except investment on a non-repatriation basis | RBI Master Direction on Foreign Investment in India, para 8 | Chartered accountant, SEBI registered merchant banker or practising cost accountant; a swap of equity instruments needs a SEBI registered merchant banker or an investment banker registered abroad |
| Price under SEBI guidelines | The same transactions for a listed company | Master Direction, paras 8.1.1, 8.2 and 8.3.1 | As the SEBI guidelines set |
| Value determined by a merchant banker | ESOP shares of an unlisted company, valued as a salary perquisite | Rule 3, Income-tax Rules, 1962; rule 15(6)(d), Income-tax Rules, 2026 | Merchant banker |
| Valuation by a registered valuer | Valuations the Companies Act, 2013 calls for | Section 247 of that Act | Registered valuer, appointed as section 247(1) provides |
| Discounted free cash flow and other merchant banker methods | Share issues under section 56(2)(viib), which does not apply from assessment year 2025-26 | Rule 11UA(2), Income-tax Rules, 1962 | Merchant banker |
When does a Rule 11UA valuation apply for tax?
A Rule 11UA valuation applies when section 56 of the Income-tax Act, 1961 needs the fair market value of property other than immovable property, including shares and securities. Section 56(2)(x) uses it for shares. A person who receives them free, with a value above ₹50,000, is taxed on the whole value; one who pays less than their value, by more than ₹50,000, is taxed on the shortfall, subject to the clause's exceptions.
Section 50CA applies the same formula from the seller's side. Where unquoted shares are transferred below that value, Rule 11UAA makes it the sale consideration for capital gains, subject to prescribed exceptions; section 79 of the Income-tax Act, 2025 carries the rule forward.
Rule 11UA of the Income-tax Rules, 1962 prescribes a formula for unquoted equity shares: (A + B + C + D - L) multiplied by PV divided by PE. A is the book value of assets other than jewellery, artistic work, shares, securities and immovable property. B is the open market price of jewellery and artistic work per a registered valuer's report, and C is the fair market value of shares and securities, determined under the same rule.
D is the value adopted for stamp duty on immovable property, and L is the book value of liabilities, excluding items such as paid-up equity capital and reserves. PV is the paid-up value of the shares being valued, and PE is the total paid-up equity share capital.
Do the Rule 11UA share-issue methods still apply?
Not to a new share issue. Rule 11UA(2) served section 56(2)(viib), which taxed a closely held company on share premium received above fair market value. The Finance (No. 2) Act, 2024 added a proviso that the clause "shall not apply on or after the 1st day of April, 2025", and the Memorandum to the Bill states that it does not apply from assessment year 2025-26.
Its five options still matter to a company defending an issue assessed for assessment year 2024-25 or earlier. They were a book-value formula, the Discounted Free Cash Flow method, other merchant banker methods for a non-resident's money only, and two price-matching options tied to venture capital or notified-entity investors. An issue price up to ten per cent above the formula, DCF or merchant banker value was deemed fair market value.
Which methods of valuation of shares apply from tax year 2026-27?
Section 536 of the Income-tax Act, 2025 repeals the Income-tax Act, 1961, which continues to apply to proceedings for any previous year beginning before 1 April 2026. From tax year 2026-27, Rule 57 of the Income-tax Rules, 2026 sets fair market value for sections 26(2)(j), 72 and 92 of the 2025 Act in one table.
Rule 57 carries the same formula for unquoted equity shares under all three sections. For unquoted shares other than equity shares, it uses the open market price. The table lists no discounted cash flow or other merchant banker method for unquoted equity shares, so for those sections the formula is the method.
How does the DCF valuation method work under Indian rules?
For FEMA, the DCF valuation method is one internationally accepted pricing methodology a certifier may adopt for an unlisted company. Rule 11UA(2) named it for clause (viib) issues, but neither Rule 11UA(1) nor Rule 57 accepts it for unquoted equity shares, where the formula governs the tax value. ESOP shares are the exception: their perquisite value is what a merchant banker determines, and that banker may use a DCF.
Paragraph 57 of ICAI Valuation Standard 103 sets out how a DCF is built. The valuer tests the projections and chooses pre-tax or post-tax free cash flows to equity or to the firm. It then fixes a discount rate and a growth rate beyond the explicit forecast period, and discounts the forecast cash flows and the terminal value to today.
How intangible assets are recognised and measured in the accounts, which feed the formula's book values, is covered in the guide to intangible assets under Ind AS.
How does FEMA pricing work for a foreign investment?
FEMA pricing sets a floor or a ceiling on the price when equity instruments pass between residents and persons resident outside India. The RBI Master Direction on Foreign Investment in India, read with the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, states the pricing guidelines in paragraph 8 (updated up to 15 June 2026).
An issue by an Indian company to a person resident outside India, and a transfer from a resident to a non-resident, must not be priced below the benchmark. Paragraph 8.10 lifts the pricing guidelines for investment on a non-repatriation basis and for a sale under SEBI regulations that prescribe the price. For a listed company the benchmark is the price under the relevant SEBI guidelines. For an unlisted company it is the fair value worked out under any internationally accepted pricing methodology on arm's length basis.
A transfer from a non-resident to a resident works the other way: the price must not exceed the same benchmark. The fund raising advisory page groups valuation work with diligence and deal documents under transaction support.
How do comparable companies and precedent transactions fit in?
They fit only where the valuer or certifier may choose the method. No tax, FEMA or Companies Act rule names a precedent transaction method, and Rule 11UA(2)(d) named the Comparable Company Multiple Method only for clause (viib) issues.
For FEMA, the Master Direction names no method, so the choice among DCF, comparable companies and precedent transactions rests with the certifier, on arm's length basis. A company can choose among business valuation methods in this order:
- Identify the law that triggers the valuation: the Income-tax Act, 1961 or 2025, FEMA, 1999, or the Companies Act, 2013.
- Check whether that law prescribes a formula or leaves the methodology to the certifier.
- Confirm who must perform or certify the valuation: a merchant banker, an accountant, a cost accountant or a registered valuer.
- Fix the valuation date and the Act in force for that period before any figure is computed.
Common Mistakes in Applying Business Valuation Methods
Each of these four errors matches a valuation to the wrong rule.
- Using a DCF report for a section 56(2)(x), section 50CA or Rule 57 computation. For these, the formula sets the tax value of unquoted equity shares; ESOP perquisites are the exception, valued by a merchant banker.
- Applying the Rule 11UA(2) menu to a new round. Section 56(2)(viib) does not apply from assessment year 2025-26, so those options no longer price a new issue for tax.
- Pricing a foreign round below the certified fair value. Paragraph 8.1.1 of the Master Direction makes that fair value a floor for an unlisted company's issue on a repatriation basis.
- Citing the wrong Act. FY 2025-26 and earlier use the Income-tax Act, 1961 and Rule 11UA; tax year 2026-27 uses the Income-tax Act, 2025 and Rule 57.
Consider a hypothetical unlisted software company whose resident founder sells shares to a foreign investor on a repatriation basis. The agreed price is below the fair value that a chartered accountant certified. The transfer does not meet the floor in paragraph 8.2, so the price must be revisited before the transfer. A fresh issue of shares to the same investor would instead be reported in Form FC-GPR, as the guide to FC-GPR filing for foreign investment explains.
How does a company get a business valuation done?
Whichever of the business valuation methods is used, the law decides the valuer. Where the Companies Act, 2013 calls for a valuation, such as a further issue of shares under section 62(1)(c), section 247 requires a valuer registered under the Companies (Registered Valuers and Valuation) Rules, 2017. A chartered accountant's net worth certificate is a different document, covered in the guide to when a company needs a net worth certificate.
For tax, the Rule 11UA or Rule 57 formula values unquoted equity shares, except an ESOP perquisite, which a merchant banker values. For FEMA, the three certifiers in the table apply, and a share swap needs a SEBI registered merchant banker or an investment banker abroad registered with its host regulator.
HSAG Consulting lists business valuations for fundraising, restructuring, MCA and strategic decision-making among its mergers and acquisitions advisory services; the report itself is signed by the valuer or certifier the law names.
A share transfer valuation for a subsidiary with property spread across group companies is described in moving beyond share valuation towards value discovery.
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