Income Tax Act (Rule 11UA) Valuations
October 9, 2025
SEBI Regulatory Valuations | Equirium Analytics
October 14, 2025
Table of contents
When foreign investment flows into or out of India, valuation compliance under FEMA (Foreign Exchange Management Act) becomes mandatory.
Every issue, transfer, or buyback of shares between a resident and a non-resident must be backed by a valuation report prepared by a SEBI-Registered Merchant Banker or an IBBI Registered Valuer.
At Equirium Analytics, we specialize in preparing FEMA-compliant valuation reports that ensure your inbound and outbound transactions are aligned with RBI and FEMA regulations — eliminating risks of non-compliance, penalties, or transaction delays.
- Understanding FEMA & FDI Valuation Requirements
The Foreign Exchange Management Act (FEMA), 1999 governs all cross-border capital transactions in India.
Under the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, any issuance or transfer of shares between a resident and non-resident must be priced based on a fair valuation performed by an authorized valuer.
These valuations ensure that:
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Foreign investors neither overpay (avoiding capital flight)
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Nor underpay (avoiding undervaluation and tax avoidance)
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Both parties adhere to the “arm’s length principle”
When FEMA Valuation Is Required
A FEMA-compliant valuation report is required for a wide range of cross-border transactions, including:
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FDI (Foreign Direct Investment): Valuation of shares issued to non-residents by Indian companies.
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Transfer of Shares: Between a resident shareholder and a non-resident buyer or vice versa.
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Rights Issue or Bonus Issue to Non-Residents: Determining the fair price of shares allotted.
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Buyback or Redemption: When a company buys back shares from foreign investors.
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Outbound Investment: When Indian entities invest or acquire stakes in foreign companies.
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Conversion of Instruments: Such as convertible notes, CCDs, or preference shares into equity.
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Repatriation or Exit Transactions: Valuation required for disinvestment or partial exits by foreign shareholders.
Valuation Methodologies Accepted under FEMA
The RBI and FEMA regulations allow any internationally accepted pricing methodology for determining the fair value of unlisted shares.
However, in practice, two key methods are commonly used:
1. Discounted Cash Flow (DCF) Method
A forward-looking approach used for growth-stage or startup companies.
This method values the business based on projected free cash flows discounted at an appropriate rate reflecting business risk.
Key Inputs:
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Financial projections (3–5 years)
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Assumptions for revenue, margins, and working capital
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Discount rate (WACC) and terminal value estimation
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Sensitivity analysis for investor assurance
2. Net Asset Value (NAV) Method
An asset-based valuation approach, best suited for asset-heavy companies or those without reliable projections.
The value is computed based on adjusted net worth derived from the latest audited financial statements.
Compliance & Reporting under FEMA
The valuation report serves as a crucial compliance document for multiple filings, such as:
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Form FC-GPR: Reporting of shares issued to non-residents.
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Form FC-TRS: Reporting of transfer of shares between residents and non-residents.
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Form ODI: For Indian companies investing in foreign entities.
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Form ESOP or DRR: In case of share-based benefits extended to non-resident employees.
Incorrect or missing valuation reports can result in rejection of filings, penalties, or compounding proceedings under FEMA.
Hence, ensuring accuracy and adherence to valuation standards is critical for smooth regulatory clearance.
Documents Required for FEMA / FDI Valuation
To prepare a compliant valuation report, we typically require:
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Latest audited and management financials
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Shareholding pattern and cap table
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Details of the transaction (issue, transfer, or buyback)
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Incorporation details, PAN, and CIN
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Business plan and projections (for DCF)
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Valuation date and transaction details
Our team assists in compiling and validating all necessary data to ensure your valuation is FEMA and RBI compliant before submission.
Why FEMA Valuation Matters
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Regulatory Approval: Ensures compliance with RBI pricing norms for cross-border capital transactions.
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Transparency: Provides an objective fair value for both resident and non-resident parties.
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Audit & Due Diligence Ready: Essential for future scrutiny by regulators, auditors, or investors.
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Smooth Transaction Processing: Avoids delays or rejections in FDI filings and approvals.
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Legal Defense: Serves as credible documentation in case of post-transaction FEMA review.
How Equirium Analytics Adds Value
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At Equirium Analytics, our valuation professionals blend deep regulatory understanding with robust financial analysis to deliver FEMA-compliant, defensible valuation reports.
Our Process Includes:
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Reviewing transaction structure and identifying FEMA applicability.
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Selecting appropriate methodology (DCF / NAV) as per RBI guidelines.
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Developing detailed financial models aligned with valuation standards.
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Preparing comprehensive valuation report meeting all RBI and FEMA documentation norms.
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Coordinating with company secretaries, legal advisors, or investors for smooth filings.
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Why Choose Equirium Analytics
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At Equirium Analytics, we combine technical precision with regulatory expertise to deliver valuation reports that are both compliant and credible.
Our approach ensures that every FEMA or FDI-related transaction stands up to scrutiny from auditors, investors, and regulators alike.Our Distinct Advantages:
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Registered Valuers for Securities & Financial Assets - Recognized under IBBI regulations for professional and compliant valuation services.
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Specialized FEMA / FDI Expertise - Deep understanding of inbound and outbound investment structures and RBI compliance norms.
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RBI-Aligned Valuation Methodologies - Reports prepared strictly as per FEMA rules and internationally accepted pricing standards.
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Analytical and Transparent Process - Backed by robust financial modeling, defensible assumptions, and clear documentation.
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Trusted by Corporates, Law Firms, and Startups - Proven track record of delivering timely and audit-ready valuation reports.
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