Valuation Certificate
Share valuation for 56(2), FEMA and an FC-GPR.
A share issue at above fair value can attract tax on the excess in the company's hands under section 56(2)(viib), and a share issue to a non-resident must be at or above fair value under FEMA. Both are tested against a valuation, so the valuation is what makes a funding round clean.
The methods are prescribed. Rule 11UA allows net asset value or discounted cash flow for unquoted equity shares; FEMA requires an internationally accepted methodology certified by a merchant banker or a chartered accountant.
A DCF valuation rests on projections, and projections that are not defensible are exactly what an assessing officer challenges years later. The working matters as much as the number.
What is included
- Method selected for the purpose — 56(2), FEMA or transfer
- Valuation working with documented assumptions
- Certificate issued with UDIN
- Support if the valuation is later questioned
What we need from you
- Audited financial statements for three years
- Business projections with assumptions
- Cap table and details of the proposed issue
- Details of any prior rounds and their pricing
Questions
Why does a startup need a valuation certificate to raise money?
Two reasons. Issuing shares above fair market value can be taxed in the company under section 56(2)(viib), and issuing to a non-resident below fair value breaches FEMA. A defensible valuation is what keeps the round clean on both counts.
Also in Income tax
Talk to us
Get started with Valuation Certificate
Tell us a little about the business and a chartered accountant will call you back. You will get a firm quote before any work begins.
- A qualified accountant on the call, not a call centre
- A firm quote before any work begins
- Your details are never sold or shared