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Key takeaways
- A valuation report is mandatory under the Companies Act, 2013 for different events like preferential allotment, mergers, schemes of arrangement (Section 230), etc.
- Rule 8(3) of the Companies (Registered Valuers and Valuation) Rules, 2017 prescribes what must appear in every report: valuer identity, conflict disclosure, valuation date, sources of information, methodology, major factors, and caveats.
- When shares are issued to a non-resident, the issue price must not be less than the fair market value determined on an arm's length basis under Rule 21 of the FEM (NDI) Rules, 2019.
- Under FEMA, the valuation for foreign investment transactions can be certified by a SEBI-registered merchant banker, a chartered accountant, or a practicing cost accountant.
- The valuer must hold registration for the specific asset class being valued. If the valuer is registered for “land and building”, they cannot sign a report for “securities or financial assets.”
A valuation report is a formal document prepared by a registered valuer that establishes the fair market value of a company's shares. Indian private companies need valuation reports to comply with requirements under the Companies Act, 2013, the Income-Tax Act, 1961, and the Foreign Exchange Management Act (FEMA), 1999.
When a valuation report is required
Indian law mandates valuation by a registered valuer across a range of corporate events and insolvency proceedings. The requirement flows primarily from Section 247 of the Companies Act, 2013, which requires that valuations under the Act be conducted only by a registered valuer. IBBI Circular No. IBBI/RV/019/2018 extends this mandate to all valuations required under the Insolvency and Bankruptcy Code and its regulations.
Valuation report required under the Income-Tax Act, 1961
The Income-Tax Act, 1961 and its associated rules require determination of fair market value (FMV) across several sections.
Rule 11UA of the Income-Tax Rules, 1962 prescribes the methods for computing FMV of equity shares for unlisted companies. For resident investors, two methods are available under Rule 11UA(2): the net asset value (NAV) method and the discounted cash flow (DCF) method. When the DCF method is used, the valuation must be issued by a SEBI-registered category I merchant banker.
Valuation report required under FEMA
When an Indian company issues shares to a person resident outside India, the issue price must not be less than the fair market value determined using any internationally accepted pricing methodology on an arm's length basis. This requirement comes from rule 21 read with schedule I of the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019.
The valuation must be certified by a SEBI-registered merchant banker, a chartered accountant in practice, or a practicing cost accountant. The report is required when filing Form FC-GPR (for fresh issuance to non-residents) or Form FC-TRS (for share transfers between residents and non-residents).
What must the valuation report include?
Rule 8(3) of the Companies (Registered Valuers and Valuation) Rules, 2017 requires every report to include:
- The purpose of valuation and the appointing authority
- Identity of the valuer and any other experts involved
- Disclosure of the valuer's interest or conflict, if any
- The valuation date and the date of the report
- Sources of information used or relied upon
- Procedure of valuation and the standards followed
- Major factors considered during valuation
- Caveats, limitations, and disclaimers
The valuer must comply with the valuation standards notified by IBBI under rule 8(1) of the Companies (Registered Valuers and Valuation) Rules, 2017.
Details required to prepare a valuation report under the Companies Act, 2013
Getting a valuation report right depends on providing the valuer with complete and accurate information. Under section 247(2), the valuer must make an impartial, true, and fair valuation, exercise due diligence, and follow prescribed valuation standards.
Company and corporate information
The valuer needs the company's certificate of incorporation, current and historical shareholding pattern (the cap table), details of all share classes and convertible instruments issued, board resolutions approving the valuation, and any shareholder agreements. If the company has subsidiaries or a multi-entity structure, details of the group entities are also required.
Financial statements
At a minimum, audited financial statements (balance sheet, P&L, cash flow) for the last three to five years. If the valuation date falls between financial year-ends, provisional financials certified by management covering the interim period are needed. For example, if the valuation date is 30 September, management-certified financials from 1 April to 30 September would be required.
Financial projections
For DCF-based valuations, the valuer needs revenue and expense projections for the next five years, projected cash flow statements, key assumptions (growth rates, margins, capex, working capital), and the terminal growth rate. These projections are typically prepared by the founder or CFO and reviewed by the valuer for reasonableness.
Valuation-specific details
The valuer needs to know the purpose of the valuation (preferential allotment, buyback, merger, private placement, etc.), the type of instrument being valued, conversion ratios for any convertible securities, the valuation date, and the total number of shares on a fully diluted basis, including ESOP pools and warrants.
Additional documents for specific scenarios
Depending on the purpose, additional documentation may be required.
- For schemes of arrangement: Under Section 230 of the Companies Act, 2013, a valuation report covering shares, property, and all tangible and intangible assets must be submitted to the National Company Law Tribunal (NCLT).
- For ESOP-related valuations: The fair market value of shares must be determined for setting exercise prices, calculating perquisite tax at the time of exercise, and for accounting under Ind AS 102. This typically requires both a share valuation from a registered valuer or merchant banker and a stock options valuation using models like black-scholes.
Valuation services help companies determine accurate, compliant, and defensible share prices for transactions like fundraising, ESOPs, and regulatory filings. With EquityList’s valuation services, companies can work with experienced valuers while seamlessly sharing cap table data, reducing back-and-forth, and ensuring faster, audit-ready reports without compliance gaps.
Who can issue a valuation report in India?
Only a registered valuer can issue a valuation report under Section 247 of the Companies Act, 2013. This applies to the valuation of shares, securities, goodwill, or net worth of a company.
The Insolvency and Bankruptcy Board of India (IBBI) is the authority that registers and regulates valuers under the Companies (Registered Valuers and Valuation) Rules, 2017.
An individual, registered partnership entity, or company can act as a registered valuer if they hold a valid certificate of registration from IBBI for the relevant asset class.
A registered valuer may sign valuation reports only within the asset class for which they are registered. Accordingly, a valuer registered for land and building cannot issue reports for securities or financial assets, and vice versa.
Penalties for using an unregistered valuer
Under Section 247(3) of the Companies Act, 2013, a valuer who contravenes the provisions faces a penalty of ₹50,000. If the contravention involves intent to defraud, the penalty increases to imprisonment of up to one year and a fine between ₹1 lakh and ₹5 lakh.
Note: A valuation report issued by an unregistered professional will also not satisfy the Companies Act filing requirements, which means the corporate action itself (such as the preferential allotment) cannot proceed until a compliant report is obtained.
Sample valuation report
This is a representative structure of a valuation report prepared under the Companies Act, 2013. The format shown here reflects common practice among registered valuers for private companies issuing shares through preferential allotment.
FAQs on valuation report in India
How do I get a valuation report?
To get a valuation report in India, you need to appoint a registered valuer (typically under the securities or financial assets category) registered with the IBBI, as required under the Companies Act, 2013. In certain cases under tax laws, a chartered accountant may also be permitted to issue or certify valuations.
Once engaged, you’ll share key company information such as financial statements, cap table, business model, and projections, based on which the valuer applies an appropriate methodology to determine the fair market value per share. The valuer then issues a signed valuation report.
How long does it take to get a valuation report?
A standard valuation report from a registered valuer typically takes 5 to 10 working days, assuming the company provides complete financial data upfront. Merchant banker reports may take 7 to 15 working days due to additional regulatory checks involved in SEBI-registered processes.
Can a chartered accountant issue a valuation report under the Companies Act?
No, not independently. Since 1 February 2019, only an IBBI-registered valuer can issue valuation reports required under the Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016. A CA can issue the report only if they are also registered with IBBI as a valuer for the relevant asset class (in this case, "securities or financial assets").
What is the validity of a valuation report?
The Companies Act does not prescribe a specific validity period for valuation reports. In practice, ROCs generally expect the report to not be older than three months from the date of the transaction. Rule 11UA(3) of Income Tax Rules, 1962, explicitly requires that a merchant banker's valuation report must not be more than 90 days old from the date of share issuance.
Which valuation methods are commonly used in India?
The three main approaches to valuation calculation are the income approach (discounted cash flow method), the market approach (comparable company or transaction multiples), and the asset-based approach (net asset value method). The choice depends on the company's stage, the availability of financial projections, and the purpose of the valuation.
