Startup Valuation in India: What the Companies Act, FEMA & Income Tax Laws Say

Valuing a startup in India isn’t just a financial exercise but a strategic step towards compliance, fundraising, and international expansion. Whether you’re issuing shares, onboarding foreign investors, or structuring ESOPs, it’s vital to understand the startup valuation norms in India under the Companies Act, FEMA, and Income Tax Act.

Let’s decode what statutory valuation means in 2025, why it matters for founders and fundraisers, and how it impacts your growth plans.

Why Statutory Valuation Matters for Startups

India now has 159,000 DPIIT-recognised startups and over 110 unicorns as of January 2025, with diaspora capital rising ~23% to US$14.6 billion between April 2024 and February 2025. With such rapid growth, transparency in valuation is essential. A credible valuation not only reassures regulators and investors but also supports robust due diligence during global fundraising.

Companies Act Valuation Guidelines

Under Section 247 of the Companies Act, any private placement, ESOP issue, or preferential share allotment must be backed by a report from a Registered Valuer. Startups typically use:
– Discounted Cash Flow (DCF)
– Net Asset Value (NAV)
– Comparable Co Multiples
– Replacement Cost or Option Pricing, depending on the business model
This ensures governance and safeguards the interests of minority stakeholders, which is foundational to valuation credibility.

FEMA Valuation Rules in 2025

With India’s push for global capital, the FEMA rules continue to evolve. In 2025, amendments allow foreign investors to invest via repatriable INR accounts or SNRR accounts, and to subscribe to convertible notes under rupee-based channels.

For any equity issued to non-residents, valuation must follow fair market value under the Non-Debt Instruments Rules. A certificate from a Merchant Banker, CA, or Cost Accountant is mandatory—usable for FC-GPR filings and valid for 90 days.

Income Tax Act & FMV via Rule 11UA (FMV DCF Method)
Rule 11UA governs the Income Tax Act’s FMV DCF method and other provisions for unlisted shares issued at a premium. As of late 2023, amendments introduced up to seven FMV methods, including:

1. DCF
2. NAV
3. Comparable Multiples
4. PWERM
5. Option Pricing
6. Milestone Analysis
7. Replacement Cost

These methods are crucial for avoiding angel tax under Section 56(2) (viib). Provisions include a 90-day merchant banker certificate gap and a 10% safe-harbour for issue premiums.

Harmonising Across Laws

Different methods under the Companies Act, FEMA, and Rule 11UA can produce varied valuations. But investors expect consistency. Harmonising across:
– Companies Act Registered Valuer report
– FEMA certificate
– Rule 11UA valuation document
… is the only surefire way to avoid valuation flails, funding delays, or tax doubts.

2025 Startup Valuation Trends and Updates

1. Valuation Options Expanded: More FMV methods under Rule 11UA provide flexibility for scaling startups.
2. FEMA Enhancements: Cross-border investment via rupee-denominated channels is now easier.
3. Rising Stakeholder Engagement: A 23% surge in diaspora funding reflects investors’ focus on valuation and compliance.
4. Capital Market Maturation: India ranked 22% of global IPO activity in Q1-2025, reinforcing valuation integrity as a must.

Practical Steps for Founders

1. Know Your Statutory Triggers: Identify ESOPs, equity issues, foreign investments, or buy-backs that require valuation.
2. Appoint Experts Timely: Get a Registered Valuer and Merchant Banker to prepare reports within 90 days of the transaction.
3. Use the Right Methods: Match DCF, NAV or multiples to your stage, with supporting projections and comparable data.
4. Align the Reports: Ensure valuations reconcile across Companies Act, FEMA and Rule 11UA formats.
5. Stagger Filing: Use recent valuation certificates for PAS-3, FC-GPR, or ESOP filings, then attach to tax returns.
6. Communicate with Investors: Valuation clarity fosters trust and establishes a solid foundation for future funding.

A robust statutory valuation framework for Indian startups does more than meets legal norms. It signals that your startup is investor-ready, globally compliant, and growth-oriented.

As startup valuation norms in India evolve, aligning with Companies Act valuation guidelines, FEMA valuation rules, and Income Tax Act FMV DCF method will position your business firmly for fundraising, exits, or global expansion.

Looking to design a valuation strategy that checks all regulatory boxes and supports your ambitions? We will help you through every step, from valuation choice to cross-border filings and fundraising readiness.

Annual Tax Return Compliance in India: Mistakes That Can Cost Startups and New Businesses

Setting up a business in India or expanding into one of the world’s fastest-growing economies is an exciting opportunity. With a young consumer base, improving infrastructure, and government incentives, India offers immense growth potential. However, one thing that remains non-negotiable for both domestic startups and foreign entities is annual income tax return (ITR) compliance.

As we move through FY 2025-26, the tax landscape has shifted in subtle yet essential ways, especially following the latest updates in Budget 2025-26. For founders, CFOs, and market entry strategists, these changes are not just procedural. They can have a direct impact on funding, operational readiness, and investor confidence.

Let’s unpack what startups and India-bound businesses need to know about tax filing in India 2025, the ITR mistakes to avoid, and how the new budget stacks up against last year’s for entrepreneurs.

Why ITR Compliance Matters for Startups and Entry-Stage Businesses

Filing your ITR correctly isn’t just about avoiding penalties; it’s also about ensuring accurate tax records. It:
● reflects financial maturity in front of VCs and investors,
● enables loss carry-forward and refund eligibility,
● prevents regulatory friction during due diligence, funding, or M&A, and
● signals operational readiness when entering partnerships or joint ventures.
For early-stage businesses, getting these basics wrong can derail momentum. And for companies entering India, it sets the tone with Indian regulators.

Common ITR Mistakes to Avoid (Especially for Startups)

Even with lean teams and capable finance advisors, startups often make these missteps:
1. Wrong ITR Form Selection
The ITR form update 2024–25 has added new sections around capital gains, presumptive taxation, and income disclosures. Filing the wrong form—say ITR-1 instead of ITR-4—could invalidate your return or delay refund processing.
2. Skipping Foreign Investment Disclosure
Startups with international founders, holding companies, or foreign investment structures are required to disclose their foreign assets under Indian rules. Failing to do so can lead to penalties of up to ₹10 lakh under the Black Money Act.
3. TDS–AIS Mismatch
Most startup revenues involve vendor payments or interest income. A mismatch between your actual income and what’s recorded in Form 26AS or AIS (Annual Information Statement) could flag your ITR for scrutiny.
4. Poor Classification of Income
Startups often generate revenue from diverse sources, including equity deals, tech services, grants, and even cryptocurrency. Misclassifying them (e.g., showing capital gains as business income) may attract audits or even penalties.
5. Delayed Filing or Verification
Even though the deadline for FY 2024–25 has been extended to 15 September 2025 (for non-audit cases), many startups delay filing and then miss the 30-day e-verification window, resulting in invalidation of their returns.

Budget FY25 vs Budget FY26: A Startup-Centric Comparison
Here’s how the last two budgets stack up from a startup and India-entry perspective:

Latest Tax Filing Rules for FY 2024–25 (AY 2025–26)

● ITR Due Date (Non-Audit Cases): Extended to 15 September 2025
● Self-Assessment Tax: Still payable by 31 July 2025 to avoid interest under Section 234A
● Presumptive Tax Filing: Continue using ITR-4 if eligible—thresholds retained
● e-Verification Deadline: 30 days from filing to complete Aadhaar OTP or DSC verification

Filing your ITR the right way in 2025 isn’t just about avoiding fines—it’s about sending a message to regulators, investors, and partners that you’re serious, structured, and ready to grow. With Budget 2025-26 leaning more toward growth-stage accountability than early-stage relief, startups must embrace financial discipline as a strategic advantage.

Whether you’re entering India for the first time or scaling a fast-growing venture, make your tax compliance part of your growth strategy and not just a year-end scramble.

Want support in structuring your India entry or managing cross-border tax compliance? Walmond Consultancy LLP specialises in guiding businesses through market entry, regulatory navigation, and long-term compliance. Contact our team for personalised support.

India Rises: Record-Breaking Business Registrations in 2024 Signal Global Confidence

India saw a record 1.9 million new businesses registered in FY 2023-24, marking a 15% year-on-year increase, according to the Ministry of Corporate Affairs. The message is clear: India isn’t just open for business, it’s accelerating.

As per the Department for Promotion of Industry and Internal Trade (DPIIT), over 123,000 startups have been officially recognised across 800+ districts as of mid-2024. This surge reflects India’s emergence as not just a startup hub, but also a highly decentralised and inclusive innovation ecosystem, welcoming both domestic and international entrepreneurs.

Driven by a combination of bold regulatory reforms, digital infrastructure, and investor-friendly policies, India has emerged as a top destination for foreign startups and SMEs looking to scale in Asia. According to the UNCTAD World Investment Report of 2024, India retained its position among the top 15 global FDI recipients, attracting over $71 billion in FDI inflows last year, despite global economic uncertainty.

However, beyond the headlines lies a more nuanced truth: while the ease of doing business in India has improved significantly, navigating its complex regulatory environment still requires in-depth local insight, especially for those entering the market for the first time.

This blog examines the key considerations startups and foreign SMEs must address to succeed in India today, including the updated India FDI policy, compliance frameworks, and sector-specific trends.

Why This Matters: India’s Market Entry Opportunity is Now

For global companies looking eastward, India presents a rare blend of scale, opportunity, and innovation.

With a $3.7 trillion GDP, a growing middle class of over 400 million, and a digital-first population, the country is fast emerging as a strategic hub for international expansion.

However, while the macro-outlook is promising, establishing a foothold in India still requires a thorough understanding of local compliance frameworks, cultural nuances, and sector-specific regulations. This is where a nuanced approach to “Ease of Doing Business in India” becomes essential for market success.

Key Trends and Insights: What You Need to Know

– Regulatory Streamlining Has Improved, but Is Still Evolving

India has made significant strides in cutting red tape:

1. Company incorporation now takes 1-2 weeks, down from 26 days a decade ago.
2. The MCA21 portal and SPICe+ form have digitalised much of the process.
3. New businesses can now register for PAN, TAN, GST, and ESIC in a single integrated form.

However, regulatory compliance still varies across states. Maharashtra, Karnataka, and Gujarat are leaders in business facilitation, while others may present additional procedural hurdles.

– The India FDI Policy Is Among the World’s Most Liberal – With Caveats

Up to 100% FDI is permitted under the automatic route in sectors such as:

1. Manufacturing
2. E-commerce B2B
3. Renewable Energy
4. Fintech (under specific caps)

However, sectors like defence, telecom, and media still require prior government approval. SMEs must also consider FDI-linked performance conditions and sector-specific equity caps.

Actionable Insight: Always check the latest Consolidated FDI Policy (2024) or consult experts before structuring your investment to ensure compliance with the relevant regulations.

– Taxation Is More Transparent – Yet Complex

1. The GST regime, introduced in 2017, has simplified indirect tax compliance.
2. Corporate tax rates have been reduced to 22% for domestic companies and 15% for new manufacturing firms.

That said, transfer pricing, withholding taxes, and state-level levies remain areas of complexity, especially for SMEs unfamiliar with Indian tax structures.

– Labour Laws are Moving Towards Uniformity

The Labour Codes on Wages, Social Security, Industrial Relations, and Occupational Safety aim to simplify over 40 central laws. While promising, implementation timelines differ across states.

Tip: Foreign companies must establish a local HR compliance framework that incorporates both central and state-level regulations.

– Infrastructure and Digital Push Offer an Edge

India’s infrastructure ambitions are not limited to highways and ports.

1. The DPI (Digital Public Infrastructure) stack – Aadhaar, UPI, DigiLocker, ONDC – is enabling real-time financial and identity services.
2. The Startup India portal and Invest India support are designed to guide foreign entrepreneurs through the maze of documentation and policy queries.

Still, gaps remain in logistics, customs clearance, and on-ground bureaucracy, particularly outside Tier-1 cities.

Walmond’s Perspective: Guiding International Growth Through Local Expertise

At Walmond Consultancy LLP, we understand that India market entry is not just about compliance, but strategic execution as well. Our on-ground knowledge, sectoral expertise, and regulatory insight have helped global startups and SMEs navigate India’s evolving business landscape with confidence.

We work closely with businesses across sectors to:

1. Facilitate company incorporation and regulatory approvals
2. Design optimal FDI structures
3. Ensure end-to-end compliance, licensing, and reporting
4. Offer state-specific market entry strategies

India’s Doors Are Open, But You Need the Right Map

India’s rapid reforms have significantly improved the ease of doing business, especially for those with a clear understanding of the legal, operational, and cultural landscape. For startups and SMEs, the opportunity is enormous, but so are the stakes.

Let’s explore how your business can grow in India, the right way. Contact Walmond Consultancy LLP for a customised India market entry strategy.

Join the conversation below – what’s your biggest question about doing business in India?