Chartered Accountant · ICAI M.No. 153926 · FRN 136869W
The two Rule 11UA methods
Net Asset Value (NAV) takes the company’s assets minus liabilities, divided by the number of shares — a book-value figure. DCF values the shares on projected cash flows and must be certified by a merchant banker. Rule 11UA was amended in 2023–24, including for non-resident investments — confirm the current method set.
Which applies where
FMV matters for the recipient under Section 56(2)(x) if shares are issued below value, for FEMA pricing, and historically for angel tax (now abolished). The permitted method depends on which test you are meeting.
A worked NAV example
Take a company with assets of ₹2 crore and liabilities of ₹50 lakh, with 1,50,000 shares in issue. Under the Net Asset Value method, FMV per share = (₹2,00,00,000 − ₹50,00,000) ÷ 1,50,000 = ₹100. A DCF built on credible revenue projections might justify a higher figure for an early-stage company with little on its balance sheet but strong prospects — which is exactly why startups usually prefer DCF over NAV. The method you may use, however, is not always yours to choose: it depends on the section being tested and the type of investor, and the rules here were tightened in 2023–24, including for non-resident investments. So fix the purpose first — recipient-side Section 56(2)(x), FEMA pricing, or company law — then apply the method that rule allows. See Rule 11UA in detail; our startup service can arrange the valuation.