A Valuation Is a Defensible Number, Not a Confident One
Finchase Capital · 8 minute read · Indore
Rule 11UA, DCF, and comparable multiples each answer a different question, using the wrong one is the risk.
Income Tax Rule 11UA prescribes specific methods (NAV or DCF, or the more recent comparable-transaction options) for valuing unquoted equity shares, and using an internally prepared spreadsheet instead of a registered valuer's report is what triggers Section 56(2)(viib) angel-tax exposure. The valuation report needs to be dated before the transaction, not produced to justify it afterward.
For fundraising, discounted cash flow, comparable company multiples, and precedent transactions each tell a different story to an investor, and inconsistency between the valuation used to price a round and the one filed with the ROC or in tax returns is a red flag that shows up in later diligence.
SEBI's ICDR framework, for a very different purpose, requires similar rigor for IPO pricing, a reminder that valuation discipline compounds rather than resets at each stage of a company's life.
A valuation nobody can defend is a number, not an opinion.
A valuation built to hold up under a tax officer's or an investor's counter-question is a different exercise from one built to hit a target number, and it's usually the exercise most founders under-invest in until they're asked to justify it.