Buyback and Rights Issue Valuation in India
By CA V. Viswanathan, FCA, ACS, CFE, IBBI Registered Valuer (IBBI/RV/03/2019/12333). V Viswanathan & Associates, Chartered Accountants, FRN 013713S. Law stated as at 13 November 2026.
A buyback or rights issue valuation supports the price at which an unlisted company buys back its shares or offers new shares to existing shareholders. The Companies Act, 2013 does not require a registered valuer's report for either: the Board fixes the price under section 68 or section 62(1)(a). A valuation is still needed in practice to justify that price, to meet the FEMA price limit when a non-resident shareholder is involved, and to anticipate income-tax questions on fair market value. CA V. Viswanathan, chartered accountant and IBBI Registered Valuer (IBBI/RV/03/2019/12333), prepares these valuations and serves clients across India from Chennai.
Is a valuation required for a buyback or a rights issue?
For an unlisted company, neither section 68 (buyback) nor section 62(1)(a) (rights issue) of the Companies Act, 2013 asks for a registered valuer's report. The Board fixes the price. A valuation is still obtained in most cases, for reasons outside those two sections: directors have to justify the price to shareholders who do not take part, FEMA sets a price limit when a non-resident is involved, and income-tax law looks at fair market value when shares change hands or are issued unevenly.
What are the conditions for a buyback?
| Condition | Rule | Source |
|---|---|---|
| Sources | Free reserves, securities premium account, or proceeds of an issue of a different kind of shares or securities | Section 68(1) |
| Authority | Articles must permit it; special resolution, or a Board resolution where the buyback is 10% or less of paid-up equity capital and free reserves | Section 68(2)(a) and (b) |
| Overall limit | 25% or less of the aggregate of paid-up capital and free reserves; for equity shares in a financial year, 25% of paid-up equity capital | Section 68(2)(c) |
| Debt after buyback | Secured and unsecured debt not more than twice the paid-up capital and free reserves | Section 68(2)(d) |
| Shares | Fully paid-up | Section 68(2)(e) |
| Time | Completed within one year of the resolution; no fresh offer within one year of closing the previous one | Section 68(2) and 68(4) |
| Filings | Letter of offer in Form SH-8, declaration of solvency in Form SH-9, return in Form SH-11 | Rule 17, Companies (Share Capital and Debentures) Rules, 2014 |
When shares are bought out of free reserves or securities premium, a sum equal to their nominal value is transferred to the capital redemption reserve (section 69). That transfer reduces free reserves and therefore affects the debt test.
Where does valuation come in?
| Situation | Why a valuation is needed | Rule |
|---|---|---|
| Buyback price | To show that continuing and exiting shareholders are treated fairly, and to support the Board's decision | Directors' duties; no valuer prescribed |
| Buyback from a non-resident shareholder | The company is a resident buyer, so the price cannot be more than fair value | Rule 21, FEMA (Non-debt Instruments) Rules, 2019 |
| Rights issue to a non-resident by an unlisted company | The price cannot be less than the price offered to resident shareholders | Master Direction on Foreign Investment, paragraph 6.12 |
| Rights renounced by a resident in favour of a non-resident | The non-resident may take up the shares subject to entry routes, sectoral caps and the pricing guidelines, so the price is tested against fair value | Master Direction on Foreign Investment, paragraph 6.12.4 |
| Rights issue well below fair value, taken up unevenly | A shareholder who ends up with a larger share for less than fair market value can face a question under section 92(2)(m) | Income-tax Act, 2025; Rule 57 |
| Tax on the exiting shareholder | Gains on a buyback are computed on the price received | Section 69, Income-tax Act, 2025 |
On tax: for buybacks from 1 April 2026 the Finance Act, 2026 treats the amount received by a shareholder as giving rise to capital gains under section 69 of the Income-tax Act, 2025, with an additional tax where the shareholder is a promoter. For buybacks between 1 October 2024 and 31 March 2026 the amount was taxed as a dividend. We state the regime that applies to the date of the buyback in the report; the rates should be confirmed for each shareholder before the offer is made.
Who can sign a buyback or rights issue valuation?
| Purpose | Registered Valuer | Merchant Banker | Chartered Accountant |
|---|---|---|---|
| Price support for the Board (Companies Act) | Yes. Not mandatory, but the usual choice | Yes | Yes |
| FEMA: buyback from a non-resident (Rule 21) | Not named by the rule | Yes, if SEBI-registered | Yes; a practising cost accountant also qualifies |
| Income tax: fair market value of unquoted equity shares (Rule 57) | Not named | Not named | Not named. The formula is normally computed by a chartered accountant |
CA V. Viswanathan is a chartered accountant and an IBBI Registered Valuer for securities or financial assets (IBBI/RV/03/2019/12333). His registration can be checked on the IBBI register of registered valuers.
Worked example: buyback limits and the debt test
Illustrative figures, not a real client. A private company has 20,00,000 fully paid equity shares of ₹10 (paid-up capital ₹2,00,00,000), free reserves of ₹6,00,00,000 and total debt of ₹9,00,00,000. The fair value per share is ₹60, and the Board proposes to buy back 3,00,000 shares at that price out of free reserves.
- Amount of the buyback: 3,00,000 × ₹60 = ₹1,80,00,000.
- 25% limit: 25% of (₹2,00,00,000 + ₹6,00,00,000) = ₹2,00,00,000. ₹1,80,00,000 is within it.
- Number of shares: 25% of 20,00,000 = 5,00,000. 3,00,000 is within it.
- Authority: 10% of capital and free reserves is ₹80,00,000. The buyback is larger, so a special resolution is needed.
- After the buyback: paid-up capital ₹2,00,00,000 − ₹30,00,000 = ₹1,70,00,000; free reserves ₹6,00,00,000 − premium ₹1,50,00,000 − transfer to capital redemption reserve ₹30,00,000 = ₹4,20,00,000.
- Debt test: ₹9,00,00,000 ÷ (₹1,70,00,000 + ₹4,20,00,000) = 1.53, which is not more than 2.
How is a rights issue priced?
Section 62(1)(a) lets a company offer shares to existing equity shareholders in proportion to their holdings, at a price the Board decides. Because every shareholder is offered the same terms, the law does not ask for a valuer. A valuation helps when some shareholders will not subscribe, since those who do will gain a larger share of the company; a price close to fair value keeps that shift defensible. Where shares are offered to outsiders instead, the issue is a preferential allotment and a registered valuer's report is mandatory: see preferential allotment valuation under section 62(1)(c).
What documents are needed?
- Audited financial statements for three years and management accounts to the valuation date
- Projections with assumptions
- Details of free reserves, securities premium and all secured and unsecured debt
- Articles of association, and the draft Board or special resolution
- Shareholder list, marking non-resident shareholders and promoters
- For a rights issue: the offer terms and expected subscription
What is the process and how long does it take?
- Scoping call: buyback or rights issue, who is taking part, and whether FEMA applies.
- Engagement letter with a fixed fee and document list.
- Valuation, and a check of the section 68 limits where relevant.
- Draft shared with management for factual confirmation.
- Signed report with UDIN, and the FEMA certificate where a non-resident is involved.
Reports are usually issued within 5–7 working days of complete information, and within 15 working days for complex cases. The clock starts when the last document is received, not on the date of engagement.
What does a buyback or rights issue valuation cost?
Our fee for a buyback or rights issue valuation starts from ₹35,000 + 18% GST. The figure depends on the number of instruments or companies to be valued, whether projections exist, and how many laws the same transaction has to satisfy. We quote a fixed fee after a first call and before any work starts. Statutory filing fees, stamp duty and any merchant banker's fee are separate.
Related valuations
The tax formula for unquoted shares is explained in share valuation for income tax under Rule 57.
Every valuation report we issue, with the law behind it and the person who must sign it, is listed on our valuation services page.
About V Viswanathan & Associates
- Chartered Accountants, FRN 013713S— Practising since 2012 from G-131, Spencer Plaza, Anna Salai, Chennai.
- IBBI Registered Valuer— Securities or financial assets, CA V. Viswanathan (IBBI/RV/03/2019/12333), registered 30 September 2019.
- FCA, ACS, CFE— Member of ICAI since 2012 and Fellow since 2017; company law, tax and forensic accounting in one practice.
- Across India— Serves clients across India from Chennai through video consultations and digitally signed reports.
Frequently Asked Questions
Is a registered valuer's report mandatory for a buyback of shares?
Not under section 68 of the Companies Act, 2013 for an unlisted company. The Board fixes the price. A valuation is obtained to support that price, and a fair value certificate is needed under FEMA when shares are bought back from a non-resident.
What is the maximum buyback a company can make?
25% or less of the aggregate of paid-up capital and free reserves, and for equity shares in a financial year 25% of the paid-up equity capital. After the buyback, debt cannot be more than twice the paid-up capital and free reserves.
When can the Board approve a buyback without shareholders?
When the buyback is 10% or less of the total paid-up equity capital and free reserves and the articles permit it. Above that, a special resolution is required.
How is a buyback taxed from 1 April 2026?
Under the Finance Act, 2026 the shareholder is taxed on capital gains under section 69 of the Income-tax Act, 2025, with an additional tax for promoters. Buybacks between 1 October 2024 and 31 March 2026 were taxed as dividend in the shareholder's hands.
What price applies when a company buys back shares from a foreign shareholder?
The transfer is from a non-resident to a resident, so under Rule 21 of the FEMA (Non-debt Instruments) Rules, 2019 the price cannot be more than fair value certified by a chartered accountant, SEBI-registered merchant banker or practising cost accountant.
Is a valuation report required for a rights issue?
No. Section 62(1)(a) leaves the price to the Board because all existing shareholders receive the same offer. For an unlisted company issuing rights shares to a non-resident, the price cannot be less than the price offered to resident shareholders; a non-resident who takes up rights renounced by a resident is subject to the pricing guidelines.
How soon can a company make a second buyback?
No offer of buyback can be made within one year from the closure of the preceding offer, and every buyback has to be completed within one year of the resolution approving it.
How long does the valuation take?
Usually 5–7 working days from complete information, and up to 15 working days for complex cases.
Related Guides
FEMA Valuation Certificate for FC-GPR and FC-TRS
The certificate a bank needs before a foreign investment is reported.
Law stated as at 13 November 2026. Official sources: Companies Act, 2013 and rules (India Code), Master Direction on Foreign Investment in India (RBI), Rule 57, Income-tax Rules, 2026 (Income Tax Department). This page is general information, not advice on a specific transaction.
Buyback and Rights Issue Valuation
Send us the balance sheet and the proposal and we will check the limits and the price.