FEMA Rule 21 and Rule 57 Share Valuation

What is a FEMA Rule 21 valuation?

Rule 21 of the FEMA (Non-debt Instruments) Rules, 2019 fixes the price at which equity instruments of an unlisted Indian company can be issued to, or transferred to or from, a person resident outside India. The price is the fair value worked out under an internationally accepted pricing methodology on an arm's length basis, certified by a chartered accountant, a SEBI-registered merchant banker or a practising cost accountant.

Which price applies to which transaction?

What is Rule 57, and when does it apply?

Rule 57 of the Income-tax Rules, 2026 (formerly Rule 11UA) sets fair market value for the provision that taxes a person who receives property, including shares, for less than its fair market value (section 56(2)(x) of the 1961 Act, now section 92(2)(m) of the Income-tax Act, 2025). For unquoted equity shares the Table to Rule 57 (Sl. No. 4) prescribes a net-asset formula based on the balance sheet, with shares and securities held taken at their fair market value and immovable property at its stamp-duty value; there is no discounted cash flow option for them. Under the old Rule 11UA the discounted cash flow option, used mainly for the angel-tax provision in section 56(2)(viib), could be certified only by a merchant banker from 2018, and that provision stopped applying from assessment year 2025-26.

Can one report cover FEMA, the Companies Act and income tax?

Not as a single figure in every case, because the three laws use different standards: FEMA and the Companies Act look to fair value under accepted methods, while Rule 57 prescribes a formula. In practice we prepare them together on the same valuation date and explain any difference, so the board, the bank and the tax officer each see a consistent set of numbers.

What information is needed?

Audited financial statements and recent management accounts; projections with assumptions; the cap table and shareholder agreements; the term sheet; and the investor's details and remittance. Reports are usually ready within 5–7 working days of complete information, and within 15 for complex cases.

FEMA and valuation services by city

About V Viswanathan & Associates

Frequently Asked Questions

Who can certify the price for shares issued to a foreign investor?

A chartered accountant, a SEBI-registered merchant banker or a practising cost accountant, using an internationally accepted pricing methodology on an arm's length basis (Rule 21 of the FEMA (Non-debt Instruments) Rules, 2019).

Is a FEMA valuation the same as a registered valuer's report?

No. FEMA asks for a certificate from a chartered accountant, merchant banker or cost accountant; the Companies Act asks for a registered valuer's report for a preferential allotment. A round with foreign investors usually needs both. CA V. Viswanathan can sign both, as a chartered accountant and as IBBI Registered Valuer (IBBI/RV/03/2019/12333), on the same valuation date.

What is Rule 57 of the Income-tax Rules, 2026?

It is the rule, formerly Rule 11UA of the 1962 Rules, that sets the fair market value of property including unquoted shares for the income-tax provisions taxing receipt of property below fair market value. For unquoted equity shares it prescribes a net-asset formula.

Is angel tax still applicable?

No. The Finance (No. 2) Act, 2024 made the tax on share premium above fair value under section 56(2)(viib) of the Income-tax Act, 1961 (angel tax) inapplicable from assessment year 2025-26, so it does not apply to shares issued on or after 1 April 2024. What remains is the rule taxing a person who receives shares for less than their fair market value (section 56(2)(x) of the 1961 Act, now section 92(2)(m) of the Income-tax Act, 2025), with unquoted equity shares valued by the formula in Rule 57 of the Income-tax Rules, 2026 (formerly Rule 11UA).

How old can the valuation be?

FEMA does not prescribe a fixed validity, but the price must be fair value at the time of issue or transfer. We value as close as possible to the board resolution and allotment, and update the report if facts change materially.

Do you work with companies outside Chennai?

Yes. We work with companies across India from our office at Spencer Plaza, Anna Salai, Chennai, through video consultations, secure document sharing and digitally signed reports and filings. We do not have offices in other cities.

Related Guides

Law stated as at 27 Oct 2026. Official sources: FEMA and RBI directions (RBI), Companies Act, 2013 (MCA), Registered valuers (IBBI), Income-tax Act, 2025 and Rules, 2026 (CBDT). Reviewed by CA V. Viswanathan, FCA, ACS, CFE, IBBI Registered Valuer (IBBI/RV/03/2019/12333).