Angel tax is gone: what that changed
Section 56(2)(viib) of the Income-tax Act, 1961, known as angel tax, was abolished by the Finance (No.2) Act 2024 for all classes of investors, with effect from Assessment Year 2025-26. It no longer applies to share issues from FY 2024-25 onwards, and the Income-tax Act, 2025 has no such provision.
Angel tax was the reason most startups bought "Rule 11UA valuations" before. The Rule 11UA route that let a merchant banker value shares by DCF for a share issue served that section. What remains of Rule 11UA today is its use for s.56(2)(x) and s.50CA, explained below.
Share issues up to FY 2023-24 can still be examined under the old law. If you have a notice or want to check a past round, see angel tax for earlier years.
Which valuation do you need?
Start from the transaction, not the rule. One round can need more than one valuation.
| Your transaction | Law that sets the price test | Who can sign | Method |
|---|---|---|---|
| Unlisted company issues shares to a non-resident | FEMA (Non-debt Instruments) Rules, 2019 | CA, SEBI-registered merchant banker or practising cost accountant | Internationally accepted pricing methodology, arm's length |
| Resident transfers unlisted shares to a non-resident | FEMA (Non-debt Instruments) Rules, 2019 | CA, SEBI-registered merchant banker or practising cost accountant | Same; price not less than fair value |
| Non-resident transfers unlisted shares to a resident | FEMA (Non-debt Instruments) Rules, 2019 | CA, SEBI-registered merchant banker or practising cost accountant | Same; price not more than fair value |
| Anyone transfers unquoted shares, or receives them, below fair market value | Income-tax Act: s.50CA (seller) and s.56(2)(x) (buyer), with Rule 11UA | Formula-based; we compute and certify the working | Rule 11UA adjusted net asset formula |
| Private company makes a preferential allotment | Companies Act, 2013, s.62(1)(c) with Rule 13 | Registered valuer under s.247 | Valuer's choice under valuation standards |
| Employee exercises ESOPs in an unlisted company | Income-tax perquisite rules (Rule 3(8)(iii) for FY 2025-26) | SEBI-registered merchant banker | Merchant banker's valuation |
FEMA pricing for foreign investors
When a non-resident is on either side of an issue or transfer of unlisted Indian shares, FEMA fixes a price limit based on fair value. This is the most common valuation founders need today.
The pricing rule
Under the FEMA (Non-debt Instruments) Rules, 2019, and the RBI Master Direction on Foreign Investment in India:
- Issue to a non-resident: the price must not be less than fair value.
- Transfer from a resident to a non-resident: the price must not be less than fair value.
- Transfer from a non-resident to a resident: the price must not be more than fair value.
Fair value here means a valuation done as per any internationally accepted pricing methodology on an arm's length basis. The rule is a one-way limit: a foreign investor can pay more than fair value on an issue, never less. If an investor has asked for a Singapore holding company above the Indian one, see Singapore holding structures.
Who can certify
For an unlisted company, the valuation must be certified by a Chartered Accountant, a SEBI-registered merchant banker or a practising cost accountant. A registered valuer's report under the Companies Act does not by itself meet this requirement unless the signatory is also one of these.
How old the certificate can be, and reporting
The RBI Master Direction says the valuation certificate must not be more than ninety days old as on the date of the investment. If a round is delayed, the valuation may need refreshing.
The company reports a share issue to a non-resident in Form FC-GPR on the RBI FIRMS portal within 30 days of allotment, with the valuation certificate. A transfer between a resident and a non-resident is reported in Form FC-TRS within 60 days of the transfer or receipt of funds, whichever is earlier. See our FC-GPR filing service.
Rule 11UA for income tax
Rule 11UA of the Income-tax Rules, 1962 still decides the fair market value of unquoted shares for two provisions of the 1961 Act. Both apply to transfers, whatever the residence of the parties.
Section 56(2)(x): the person receiving shares
If a person receives shares for less than their fair market value and the shortfall is more than ₹50,000, the shortfall is taxed as that person's income. If the shares are received without consideration and their value is more than ₹50,000, the whole value is taxed. This is the provision that survived the angel tax abolition.
Section 50CA: the person transferring unquoted shares
If you transfer unquoted shares for less than their fair market value, s.50CA treats the fair market value as your sale consideration for capital gains. Rule 11UAA says the value is worked out under Rule 11UA.
So a transfer at a low price can create tax for both sides: capital gains on the higher value for the seller, and income for the buyer on the shortfall.
The Rule 11UA formula in plain words
For unquoted equity shares, Rule 11UA prescribes an adjusted net asset value formula. You start from the balance sheet and replace certain book values with market-linked values:
- Immovable property at the value adopted for stamp duty.
- Jewellery and artistic work at the value in a registered valuer's report.
- Shares and securities held at their own fair market value under the same rule.
- Other assets at book value, with specified adjustments.
Liabilities are deducted, and the result is spread over the paid-up equity. There is no DCF option under this formula; a strong future plan does not raise the value.
Which Income-tax Act applies
For transfers up to 31 March 2026 (FY 2025-26, AY 2026-27), the Income-tax Act, 1961 and Rule 11UA apply. For transfers on or after 1 April 2026 (Tax Year 2026-27 onwards), the Income-tax Act, 2025 applies. We map each transaction to the provision and valuation rule that apply on its date before we sign.
When FEMA and income tax both apply
A transfer between a resident and a non-resident usually has to pass both a FEMA test and an income-tax test. The two use different methods, so the numbers can differ.
| Transfer | FEMA test | Income-tax test | Practical result |
|---|---|---|---|
| Resident sells to non-resident | Price not less than FEMA fair value | Seller: s.50CA if price is below Rule 11UA value | Price at or above both values |
| Non-resident sells to resident | Price not more than FEMA fair value | Buyer: s.56(2)(x) if price is below Rule 11UA value by more than ₹50,000 | Price within the FEMA cap, checked against Rule 11UA |
We prepare both workings together, so the agreed price sits inside the range both laws allow. Share transfer paperwork, stamp duty and register updates are covered on our share transfer page.
Companies Act valuations by a registered valuer
A preferential allotment by an unlisted company needs a registered valuer's report. It is a separate requirement from FEMA and income tax.
Under s.62(1)(c) of the Companies Act, 2013 and Rule 13 of the Companies (Share Capital and Debentures) Rules, 2014, a preferential allotment needs a special resolution, and the price must be determined on the basis of a valuation report of a registered valuer. Where shares are allotted for consideration other than cash, the consideration must also be valued by a registered valuer.
A registered valuer is a person registered under s.247 and the Companies (Registered Valuers and Valuation) Rules, 2017, with the Insolvency and Bankruptcy Board of India (IBBI) as the registering authority. For shares, the asset class is "securities or financial assets". Since 1 February 2019, when the transition period ended, only registered valuers can issue these reports.
If the allotment also needs more authorised capital, see increase in share capital.
ESOP exercise valuations
When an employee exercises options in an unlisted company, the perquisite is taxed on the fair market value on the exercise date. For FY 2025-26, under the 1961 Act rules, that value for unlisted shares must be determined by a SEBI-registered merchant banker. Plan your exercise windows with this in mind; see ESOP scheme drafting.
Valuation methods in plain words
The method depends on the law and on the business. FEMA allows any internationally accepted method; the Rule 11UA income-tax formula does not.
| Method | What it does | Suits |
|---|---|---|
| Net asset value (NAV) | Assets minus liabilities, at book or adjusted values | Asset-heavy or holding companies, early-stage companies with little revenue |
| Discounted cash flow (DCF) | Present value of projected future cash flows | Growing businesses with credible projections |
| Market multiples | Value by reference to comparable companies or recent transactions | Businesses with good listed or deal comparables |
For a FEMA valuation of a startup, DCF is common because the future is where the value lies. For the income-tax test on a transfer, the Rule 11UA formula is used, and it often gives a lower figure than DCF.
Documents we need
- Audited financial statements for recent years, and management accounts up to the valuation date
- Cap table and shareholding pattern, before and after the transaction
- Term sheet, share subscription agreement or share purchase agreement
- Business plan and projections for a DCF valuation, with key assumptions
- Stamp duty values of immovable property and details of other investments, for Rule 11UA
- Details of the investor or buyer, including residence status
- Any earlier valuation reports
Fee for a share valuation
Our fee is quoted after we scope the transaction. There is no government fee for a valuation.
| Fee | Amount |
|---|---|
| Regikart professional fee, share valuation | Fee on quote |
| Government fee | No government fee |
Professional fees exclude GST at 18%. Government fees, where they apply, are paid at actuals to the department and are shown separately. Fees verified on 21 September 2026.
The quote depends on how many laws apply, the method, and whether a registered valuer or merchant banker must sign. Where the law needs one of them, their fee is separate. We confirm everything in writing before work starts. For a standard valuation report with a published starting fee, see our valuation report service.
How the engagement works
- Scoping. We read the term sheet or deal terms, identify the parties' residence and list the price tests that apply.
- Data. You share financials, cap table, projections and property details.
- Valuation. We build the FEMA valuation and the Rule 11UA working, and coordinate a registered valuer or merchant banker where the law requires one.
- Price check. We confirm the proposed price passes every applicable test, or tell you the range that does.
- Report and filing support. You receive the signed report or certificate, ready for FC-GPR, FC-TRS or the allotment filings.
Mistakes that cause trouble later
- Using a registered valuer's report for FEMA when the signatory is not a CA, merchant banker or cost accountant.
- A FEMA certificate more than 90 days old on the investment date.
- Pricing a transfer only on DCF and ignoring the Rule 11UA value that decides s.50CA and s.56(2)(x).
- Issuing to a friend or strategic investor at a discount without checking the recipient's s.56(2)(x) exposure.
- Treating angel tax as the only risk. Its abolition did not remove FEMA, s.50CA, s.56(2)(x) or Companies Act requirements.
Why Regikart
Regikart is a CA and CS firm serving 250+ clients from offices in Kolkata (head office), Delhi and Bengaluru. Our CA and CS teams handle the valuation and the filings that follow, so the price, the paperwork and the RBI reporting match.
- Every applicable test in one review: FEMA, income tax and Companies Act.
- Fee confirmed in writing after scoping.
- Filings in the same team: FC-GPR, share transfers, allotments and capital increases.