Chartered Accountant · ICAI M.No. 153926 · FRN 136869W
Projections are the soft spot
A startup’s high valuation usually comes from a DCF built on future projections — which are inherently subjective. The tax department’s classic challenge was that the projections were inflated to justify a high premium, especially when the startup’s actual performance lagged far behind the forecast. This was the heart of the angel-tax disputes.
Eased, but not irrelevant
With angel tax abolished from AY 2025-26, the main driver of these challenges has fallen away for current rounds. But a defensible valuation still matters — for FEMA pricing, Section 56(2)(x) on the investor side, and general credibility. Keep the assumptions reasonable and documented. Retain the valuer’s report and basis.
A worked example
Example: a startup that valued itself at ₹50 crore on hockey-stick projections, then earned a fraction of the forecast, historically faced an angel-tax demand questioning the premium. Today that specific demand is gone, but if its valuation is needed for a foreign round, unrealistic numbers still invite FEMA and credibility issues. Realistic, evidenced projections are the protection. Our team can prepare a defensible valuation.