AS | Ankit Sarawagi|Founder, CFOmatrix·September 2026·10 min read | FEMA & FDI |
A foreign investor has agreed a price and wired the money. Before you can issue the shares and file with the RBI, one document decides whether that price is even allowed: the valuation report. Under the FDI pricing guidelines, a non-resident cannot come in below fair value, and cannot exit above it.
The FDI pricing guidelines are the FEMA rules that put a floor and a cap on the price at which a non-resident buys, is issued, or sells shares of an Indian company. The number that anchors that floor and cap is the fair value in a valuation report, issued by a SEBI-registered merchant banker or a chartered accountant. This guide covers what the pricing guidelines require, who issues the valuation, when you need it, how long it lasts, and why it is a different animal from the Rule 11UA income-tax valuation that founders keep confusing it with.
- What they set
- A fair-value floor on issue or transfer to a non-resident, and a cap on a non-resident’s exit.
- The number
- Fair value from a valuation report using an internationally accepted method such as DCF.
- Who values
- A SEBI-registered merchant banker or a chartered accountant (unlisted company).
- When needed
- FC-GPR, FC-TRS, ODI, and buyback or exit involving a non-resident.
- Not the same as
- The Rule 11UA income-tax valuation. Two reports, two regulators.
1 What the FDI pricing guidelines require
The FDI pricing guidelines exist to stop capital from leaving or entering the country at an unfair price dressed up as an equity deal. They apply the moment a non-resident is on one side of a share transaction with an Indian company. The rule is direction-dependent, and it is worth learning it as two mirror-image limits:
- On the way in (floor). When capital instruments are issued to a non-resident (a fresh FDI round) or transferred from a resident to a non-resident, the price cannot be below the fair value. The foreign investor must pay at least fair value.
- On the way out (cap). When a non-resident transfers shares back to a resident (an exit), the price cannot be above the fair value. The non-resident cannot take out more than fair value.
In both cases fair value is not a number you negotiate into a term sheet and hope survives. It is worked out on an arm’s length basis using an internationally accepted pricing methodology, and it is recorded in a valuation report that you attach to your RBI filing. For an unlisted Indian company, discounted cash flow (DCF) is the method most commonly used. For a listed company, the pricing follows SEBI guidelines instead of a merchant-banker DCF.
2 Who issues the valuation report
For an unlisted Indian company, the FEMA valuation report is issued by either:
| Valuer | What they can value under FEMA |
|---|---|
| SEBI-registered merchant banker | A Category I merchant banker registered with SEBI. Commonly used for priced rounds and larger transactions, and often the investor’s preference. |
| Chartered Accountant | A practising CA can issue the FEMA valuation for capital instruments of an unlisted company, using an internationally accepted method on an arm’s length basis. |
Either way, the valuer certifies the fair value and the methodology. That certificate is the document your company secretary or CFO attaches to the FC-GPR or FC-TRS in the Single Master Form on the RBI’s FIRMS portal. Without it, the filing is incomplete and the AD bank will not process it.
2b How fair value is worked out
You do not need to run the model yourself, but you should recognise what the valuer is doing so the number does not surprise you. Under FEMA, any internationally accepted methodology is allowed, and in practice a valuer picks or blends from these:
- Discounted cash flow (DCF). Projects the company’s future free cash flows and discounts them to today. The default for a growth-stage startup with a real forward plan.
- Market or comparable-company approach. Applies multiples from comparable listed companies or recent deals.
- Net asset value (NAV) approach. Based on the net worth of the balance sheet, more suited to asset-heavy or mature businesses.
Whatever the method, the report has to stand on its own facts: the projections must be reasonable, the assumptions stated, and the value defensible if the AD bank or, later, a diligence team asks. A DCF built on a hockey-stick nobody believes is a problem waiting to surface.
3 When you actually need a FEMA valuation
A FEMA valuation report is triggered whenever the price to or from a non-resident has to be justified under the pricing guidelines. The main events are:
| Event | Why a valuation is needed |
|---|---|
| FC-GPR (issue of shares) | Fresh issue of equity shares, CCPS or CCDs to a foreign investor. Fair value sets the floor; report attached to the FC-GPR. See our FC-GPR filing guide. |
| FC-TRS (share transfer) | Transfer between a resident and a non-resident. Floor if the non-resident buys, cap if the non-resident sells. See our FC-TRS filing guide. |
| ODI (overseas investment) | An Indian entity investing abroad values the foreign entity’s shares to price its outbound investment on an arm’s length basis. |
| Buyback / exit | A buyback or a non-resident exit is capped at fair value, so the price has to be supported by a valuation. |
Only compulsorily convertible instruments (equity shares, CCPS and CCDs) are FDI-eligible capital instruments, and it is these that the pricing guidelines apply to. Optionally convertible or redeemable instruments are treated as debt (ECB), not FDI, and a US-style SAFE is not a permitted instrument under FEMA. If you are raising from a foreign investor, structure it as CCPS or CCDs, not a SAFE.
4 Validity of the valuation certificate
A valuation is a snapshot of the company on a particular date, so it cannot be stale. The FDI pricing guidelines expect the report to be reasonably contemporaneous with the transaction. In practice, valuers and AD banks treat a report as usable for a limited window, commonly up to about 90 days from the valuation date, so that the price still reflects current facts.
If a round drags and you cross that window before you issue the shares or file, the valuer usually has to refresh the report. This is exactly why the valuation should be dated close to the actual issue or transfer, not months earlier when you first started talking to the investor.
5 FEMA valuation vs the Rule 11UA income-tax valuation
This is the single most common mix-up we see. A priced FDI round often needs two valuations, done under two different laws, for two different regulators. They are not interchangeable, and one does not satisfy the other.
| Aspect | FEMA valuation | Rule 11UA valuation (Income-tax) |
|---|---|---|
| Purpose | Fixes the floor and cap on price to or from a non-resident | Supports the tax position on the share price (fair market value) |
| Law | FEMA, FDI pricing guidelines | Income-tax Act and Rule 11UA |
| Who relies on it | RBI / AD bank, via FIRMS | Income-tax department |
| Method | Any internationally accepted method (often DCF) | Prescribed methods under Rule 11UA |
| Attached to | FC-GPR / FC-TRS on FIRMS | Retained for the tax record and assessments |
Because the two rulebooks can produce different numbers, founders sometimes discover late that a price which clears FEMA still creates a tax exposure, or the reverse. Get both reports scoped at the same time, from professionals who know they have to sit alongside each other.
Brewly Pvt Ltd raises a priced round from a US fund. A SEBI-registered merchant banker runs a DCF and certifies fair value at ₹120 per CCPS. Under the FDI pricing guidelines that is the floor: the fund can be issued the CCPS at ₹120 or higher, but not at ₹110. Brewly issues at ₹120, receives the inward remittance with a FIRC from its AD bank, and files FC-GPR on FIRMS within 30 days, with the merchant banker’s valuation report and the FIRMS six-pointer KYC attached. Separately, Brewly gets a Rule 11UA report so the ₹120 price also holds up for income tax.
Two years on, the US fund exits and sells its CCPS to an Indian promoter. A fresh valuation puts fair value at ₹300. Here the pricing guideline works as a cap: the non-resident fund cannot be paid more than ₹300 on the way out, though it could accept less. The transfer between the resident promoter and the non-resident is reported on FC-TRS within 60 days of the transfer or the funds, whichever is earlier, with the valuation report supporting the price. Brewly makes sure the valuation is dated close to the transfer so it is still contemporaneous when it files.
6 Your FDI pricing and valuation checklist
- Confirm the instrument is FDI-eligible: equity shares, CCPS or CCDs, not a SAFE or a redeemable instrument.
- Scope the FEMA valuation the moment the term sheet is signed, from a SEBI-registered merchant banker or a CA.
- Also scope the Rule 11UA income-tax valuation so the same price holds for tax.
- Check the price against the pricing guidelines: at or above fair value on issue or inbound transfer, at or below on a non-resident exit.
- Register the Entity Master and Business User on FIRMS beforehand and loop in your AD bank early.
- Keep the valuation report, FIRMS six-pointer KYC, FIRC / inward-remittance advice and board and shareholder resolutions ready.
- File FC-GPR within 30 days of issue, or FC-TRS within 60 days of transfer or funds, with the valuation attached.
- Make sure the valuation date is contemporaneous with the transaction; refresh it if the deal slips past the window.
- Save every valuation report, challan and KYC for investor and acquirer due diligence.
Not sure which FEMA filings your round triggers?
Use our free FEMA / FDI Filing Checker: tell it about your foreign investor and instrument, and get the exact filings, valuations and deadlines you need, from FC-GPR to FC-TRS.
Check my FEMA filings7 FAQs
What are the FDI pricing guidelines under FEMA?
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When is a FEMA valuation report needed?
How is the FEMA valuation different from the Rule 11UA income-tax valuation?
How long is a FEMA valuation report valid?
Related guides & tools
FEMA & FDI compliance for startups (pillar guide) →
FC-GPR: reporting an issue of shares to a non-resident →
FC-TRS: reporting a resident to non-resident share transfer →
Convertible instruments under FEMA: CCPS and CCDs →
FEMA / FDI Filing Checker (free tool) →
AS | Founder, CFOmatrix | Finance Strategy & Compliance CFOmatrix helps Indian startups build finance, tax and compliance functions that stand up to investor due diligence, from process and controls to the filings and the numbers behind them. |
Disclaimer: This article is general information as of September 2026 and is not legal, tax or professional advice. FEMA, the FDI pricing guidelines, the Non-debt Instruments Rules and income-tax valuation rules can change. Confirm your specific obligations with a qualified professional and your AD bank before pricing or filing.