Rule 11UA – the section number every startup valuation conversation quoted for a decade – no longer exists. From 1 April 2026 the Income-tax Rules 2026 govern, and the startup-relevant machinery now lives in Rules 56, 57 and 58, with ESOP valuation in Rule 15. The bigger story is what did not survive: the five special methods, the CCPS valuation mechanism, the 10% safe-harbour band and the 90-day report validity – all added with fanfare in September 2023 – were dropped entirely, because the angel tax they served is dead. Here is the complete new map: what each rule says, which tax sections it feeds, and who is allowed to sign what.
The new map at a glance
| Old (1962 Rules) | New (2026 Rules) | What it does |
|---|---|---|
| Rule 11U | Rule 56 | Definitions: valuation dates, merchant banker (SEBI Cat-I), registered valuer (s.513), balance sheet |
| Rule 11UA(1) | Rule 57 | FMV of property incl. unquoted shares – for s.92 (old 56(2)(x)), s.79 (old 50CA), s.26(2)(j) |
| Rule 11UA(2)/(3) – DCF, 5 methods, CCPS, 10% band, 90-day validity | Dropped | Served only angel tax (56(2)(viib)) – abolished, not re-enacted in the ITA 2025 |
| Rule 11UAA | Merged into Rules 56–57 | FMV for seller-side deemed consideration (s.79) |
| Rules 11UAC/11UAD | Rule 58 | Exempt classes – now serving both s.92(3)(i) and s.79 (IBC resolution-plan transfers etc.) |
| Rule 3(8)/(9) (ESOP perquisite) | Rule 15(6)–(8) | Unlisted-share FMV on exercise: merchant banker only, 180-day window |
Rule 57: for unquoted equity shares, NAV is the only method
Rule 57 carries the old book-value formula forward verbatim. For unquoted equity shares, FMV = (A + B + C + D – L) × PV / PE – where A is the book value of assets (net of tax refunds due and fictitious assets), B is jewellery and artistic work at open-market price per a registered valuer’s report, C is the FMV of shares and securities held (computed under this rule), D is the stamp-duty value of immovable property, L is liabilities excluding share capital, reserves, unset dividends, excess tax provisions, unascertained provisions and contingents, and PV/PE apportion the result to the shares valued. Two consequences follow. First, DCF has no statutory foothold for recipient-side (s.92) or seller-side (s.79) valuation of unquoted equity – it never did, and the 2026 Rules did not change that. Second, because startups carry their value in intangibles that never reach the balance sheet, NAV-based FMV for a startup is usually far below the negotiated deal price – which is precisely why below-FMV tax exposure on startup share deals is rarer than founders fear, and why the traps live in the opposite direction (see the share-transfer tax guide).
What the dropped machinery means in practice
The September 2023 amendment let non-resident-facing issues use five additional methods (comparable company multiple, probability-weighted expected return, option pricing, milestone analysis, replacement cost), gave CCPS their own valuation basis, tolerated a 10% premium over FMV, and accepted merchant-banker reports up to 90 days old. All of it existed to police angel tax – the tax on issuing shares above FMV. With that tax abolished for issues from FY 2024-25 and no successor in the Income-tax Act 2025, the entire apparatus lapsed. Practically: there is no longer any income-tax ceiling on the premium at which a startup issues shares. What survives is scrutiny of a different kind – s.102 (old s.68) still requires proving each investor’s identity, creditworthiness and genuineness, source of source included, so the valuation file remains part of your defence even though no FMV cap applies. And the five methods live on as good practice for FEMA certificates, where “any internationally accepted pricing methodology” governs – a different rulebook covered in the FEMA pricing guide.
ESOP valuation: Rule 15, merchant banker only
When an employee exercises options over unlisted shares, the perquisite is the FMV on the “specified date” minus the exercise price – and under Rule 15(6)(d) that FMV must come from a SEBI-registered merchant banker (a CA cannot sign this one). The specified date is the exercise date or any earlier date within 180 days before it – so one merchant-banker report can serve a six-month exercise window. The same merchant-banker requirement covers non-equity specified securities under Rule 15(7). Full ESOP mechanics, including the 60-month deferral for eligible startups, are in the ESOP guide.
Who signs what: the professionals map
| Context | Who can sign |
|---|---|
| Companies Act price floor for a preferential allotment (s.62(1)(c) + Rule 13) | Registered valuer only (s.247, IBBI, securities class) |
| FEMA Rule 21 pricing certificate (issue or transfer involving non-residents) | CA, SEBI-registered merchant banker, or practising cost accountant |
| Cross-border share swaps (Rule 9A) | SEBI merchant banker or overseas investment banker only – not a CA |
| ESOP perquisite FMV (Rule 15(6)(d)) | Merchant banker only, 180-day window |
| s.92 / s.79 FMV (Rule 57) | NAV computation (equity); merchant banker or accountant report for other securities |
| Sweat equity, schemes of arrangement, minority buy-outs | Registered valuer |
A priced startup round with foreign money therefore routinely needs two documents: a registered valuer’s report setting the Companies Act floor, and a separate CA or merchant-banker certificate for the FEMA floor. One professional wearing both hats can issue both, but they are legally distinct reports serving different statutes – a distinction Series A diligence teams check. Market pricing runs roughly ₹25,000–75,000 for RV/CA reports and ₹75,000–1.5 lakh for merchant-banker reports, varying with complexity.
Need a valuation that survives scrutiny?
My Cloud Accountant coordinates the full stack – registered-valuer reports, FEMA certificates, merchant-banker ESOP valuations – matched to the right statute the first time.
Talk to an expertFrequently Asked Questions
Do we still need a valuation report to issue shares at a premium?
For income-tax purposes, no ceiling applies any more – angel tax is gone. But you still need a registered valuer’s report to set the price under the Companies Act for a preferential allotment, a FEMA certificate if any subscriber is a non-resident, and a defensible valuation file for s.102 (old s.68) credit-worthiness scrutiny. The reports did not disappear; only the FMV cap did.
Can a CA still sign startup valuation reports?
Depends on the statute: yes for FEMA Rule 21 certificates and for supporting Rule 57 computations; no for Companies Act preferential-issue pricing (registered valuer only), ESOP perquisite FMV (merchant banker only), and cross-border swap valuations (merchant banker or overseas investment banker only).
Is the 10% safe-harbour band really gone?
Yes. It tolerated issue prices up to 10% above FMV for angel-tax purposes, and it lapsed with the tax itself. Where a tolerance question now arises – typically FEMA – the test is simply that the price is at or above the certified fair value; there is no statutory band either way.
Which valuation applies when an NRI buys startup shares?
Two rulebooks stack: Rule 57 NAV governs the buyer-side s.92 test (rarely bites, since NAV runs low for startups), and FEMA Rule 21 sets the pricing floor if the investment is on a repatriation basis (not applicable to Schedule IV non-repatriation investments). The FEMA pricing guide covers the second rulebook in full.
Last reviewed: August 2026. Income-tax Rules 2026 (Notification 22/2026, G.S.R. 198(E), 20 March 2026, effective 1 April 2026; corrigendum G.S.R. 286(E)); Income-tax Act 2025 ss.26, 79, 92, 102; FEM (NDI) Rules 2019.