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Rule 57 (old Rule 11UA) prescribes how to compute FMV of unlisted equity shares for income tax purposes. Two methods:
Startup ecosystem · Valuation
Rule 11UA: fair market value for unlisted shares (for tax purposes)
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Provisions
IT Act, Rule 11UA | FEMA (for cross-border transactions)
Analysis
Method 1, NAV (Book Value): FMV = (A − L) ÷ Total shares, where A = paid-up capital + general reserves + surplus + other reserves + Long-term borrowings, L = accumulated losses + deferred expenditure + miscellaneous expenditure. Method 2, DCF (Discounted Cash Flow): FMV as determined by a SEBI-registered merchant banker or CA. Required for ESOP grants and for issuing CCPS/equity to investors. Rule 11UA valuation is used for: ESOP FMV computation, angel tax defence (now abolished), determining if a gift of shares is taxable.
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