FEMA Pricing Guidelines for Share Issue and Transfer in 2026

Written by CA Nandini, Krystal7 Consultants. Last updated 2 October 2026.

Rule 21 of the FEMA Non Debt Instruments Rules, 2019 sets the price. An unlisted Indian company must issue shares to a non resident at or above fair value. A resident selling to a non resident must also receive at least fair value. A non resident selling to a resident may receive at most fair value. A Chartered Accountant, a SEBI registered merchant banker or a practising cost accountant certifies the value. RBI wants the certificate no more than 90 days old on the date of the investment.

This page covers the floor and ceiling, who can value, which methods pass, convertible instruments, swaps and rights issues. It also covers the end of angel tax and the income tax value tests that remain under the Income Tax Act, 2025. INR 1,00,000 is one lakh (100,000) and INR 1,00,00,000 is one crore (10 million).

What do the FEMA pricing guidelines require?

The pricing guidelines set a minimum price when a non resident buys into an Indian company. They set a maximum price when a non resident sells out. For an unlisted company the benchmark is fair value. A professional fixes it by an internationally accepted method on an arm's length basis. For a listed company the benchmark comes from SEBI rules.

The rule sits in rule 21 of the Foreign Exchange Management (Non Debt Instruments) Rules, 2019, which we call the NDI Rules. The RBI copy of the rules is updated up to 2 Sep 2026. Paragraph 8 of the RBI Master Direction on Foreign Investment in India, updated up to 15 Jun 2026, repeats the rules.

Rule 21(2) has three limbs. Clause (a) covers a fresh issue by the company. Clause (b) covers a transfer from a resident to a non resident. Clause (c) covers a transfer from a non resident to a resident. The direction of the money decides whether fair value is a floor or a ceiling.

Transaction	Unlisted company price test	Listed company price test	Rule
Issue of shares to a non resident	Not less than certified fair value	Not less than the price worked out under SEBI guidelines	21(2)(a)(i) and (ii)
Transfer, resident to non resident	Not less than certified fair value	Not less than the SEBI price or the SEBI preferential allotment price	21(2)(b)
Transfer, non resident to resident	Not more than certified fair value	Not more than the SEBI price or the SEBI preferential allotment price	21(2)(c)
Sale under SEBI regulations where SEBI fixes the price	Rule 21 does not apply	Rule 21 does not apply	21(1)
Investment on a non repatriation basis	Rule 21 does not apply	Rule 21 does not apply	Proviso to rule 21; para 8.10.1

Rule 21(2)(c) also states a guiding principle. The non resident "is not guaranteed any assured exit price at the time of making such investment or agreement". The investor exits "at the price prevailing at the time of exit". This is why a put option at a fixed return fails FEMA. Rule 9(5) allows an option clause only with a lock in of at least one year and without any assured return.

The logic is simple. India wants foreign money to come in at no less than fair value and leave at no more than fair value. A price outside that band moves value across the border in the wrong direction.

Which transactions do the pricing guidelines cover?

Rule 21 covers every equity instrument that a non resident takes or gives up on a repatriation basis. That includes equity shares, compulsorily convertible preference shares (CCPS), compulsorily convertible debentures (CCDs), partly paid shares and share warrants. Rights issues, swaps and subscriber shares have their own tests inside the same rule.

The NDI Rules define equity instruments as equity shares, convertible debentures, preference shares and share warrants issued by an Indian company. For FEMA, the convertible instruments must be fully, compulsorily and mandatorily convertible. An optionally convertible debenture is debt and falls under the external commercial borrowing framework instead.

Situation	What the price must meet	Source
Fresh allotment of equity or CCPS or CCDs	At least fair value on a certificate dated within 90 days	Rule 21(2)(a); para 8.1 and 8.11
Convertible instrument at conversion	Price or formula fixed at issue; conversion price not below fair value at issue	Explanation to rule 21(2)(a); para 8.1.2
Subscriber shares at incorporation	Face value, within entry route and sectoral cap	Rule 21(2)(c)(v); para 8.5
Rights issue by an unlisted company	Not less than the price offered to residents	Rule 7
Renounced rights bought by a non resident	Rule 21 pricing	Rule 7A
Share swap	Valuation by a SEBI registered merchant banker or a regulated investment banker abroad	Rule 21(2)(c)(iv); para 8.4
Partly paid shares	Price fixed upfront; 25% upfront, balance within 12 months	Para 8.6 and 4.3
Share warrants	Price and conversion formula fixed upfront; at least 25% upfront, balance within 18 months	Rule 21(2)(c)(vi); para 8.7 and 4.4
Convertible note of a start up	Minimum INR 25 lakh in a single tranche; conversion within 10 years	Rules 2 and 18
Capital contribution in an LLP	Not less than fair price under an internationally accepted valuation norm	Para 8.8 and 8.9
Investment on a non repatriation basis	No pricing test	Para 8.10.1

Our guide to allotting shares to a foreign shareholder walks through the board and filing steps around the price.

Who can certify the valuation under FEMA?

For an unlisted company, three professionals can certify fair value under FEMA. They are a Chartered Accountant, a merchant banker registered with SEBI and a practising cost accountant. A share swap is the exception. It needs a SEBI registered merchant banker or an investment banker outside India registered with its home regulator.

Rule 21(2)(a)(ii) names the three valuers for a fresh issue. Rule 21(2)(b) and (c) use the same list for transfers. Paragraph 8.11 of the Master Direction repeats the list when it sets the 90 day limit. The NDI Rules do not ask the valuer to be a registered valuer under the Companies Act, 2013.

Company law adds its own test for a preferential allotment. Rule 13 of the Companies (Share Capital and Debentures) Rules, 2014 covers a preferential allotment. The price must be determined on the basis of a registered valuer's report. A registered valuer holds a registration under section 247 of the Companies Act, 2013. A Chartered Accountant is not a registered valuer by default.

So a private placement to a foreign parent often needs two signatures. One is the FEMA certificate. The other is the registered valuer's report under the Companies Act. One person can give both when that person qualifies under both laws. We ask for a single engagement that issues both documents on the same date with the same number.

Purpose	Who may sign	Law
FEMA fair value, unlisted company, issue or transfer	Chartered Accountant, SEBI registered merchant banker or practising cost accountant	Rule 21(2), NDI Rules
FEMA value in a share swap	SEBI registered merchant banker, or investment banker abroad registered with its home regulator	Rule 21(2)(c)(iv), NDI Rules
Preferential allotment under company law	Registered valuer under section 247	Rule 13, Share Capital Rules
Rights issue to existing members	No valuation under company law; FEMA uses the resident price	Section 62(1)(a); rule 7, NDI Rules
Income tax value of unquoted equity shares	No valuer; a book value formula	Rule 57, Income Tax Rules, 2026
Income tax value of unquoted preference shares	Open market price; the assessee may obtain a merchant banker's or accountant's report	Rule 57, Income Tax Rules, 2026

Our valuation reports service issues FEMA certificates and coordinates the registered valuer report where company law needs one.

Which valuation method is acceptable under FEMA?

FEMA accepts "any internationally accepted pricing methodology for valuation on an arm's length basis". The rules name no single method. Discounted cash flow (DCF), net asset value and market multiples all qualify when the valuer applies them properly. The valuer must explain why the chosen method suits the company.

The words "internationally accepted" leave the choice to the valuer. In practice, three methods carry most FEMA certificates. The valuer often weights two of them or uses one and cross checks with another.

Method	How it values the company	When it fits	Watch out for
Discounted cash flow (income approach)	Present value of projected free cash flows at a discount rate	Growth companies, start ups, service subsidiaries with a plan	Projections must be the board's, dated, and tied to a business plan
Net asset value (cost approach)	Assets less liabilities, at book or adjusted value	Holding companies, asset heavy companies, early stage companies with no plan	Often gives a low value for a growth company, which makes a low floor
Comparable company or transaction multiples (market approach)	Multiples of revenue or EBITDA from peers or recent deals	Companies with clear listed peers or recent priced rounds	Peer selection and size discounts need support
Price of a recent arm's length round	Price paid by an unrelated investor shortly before	Follow on rounds	Needs evidence the earlier investor was unrelated and the terms comparable

DCF is the most common method for a foreign owned start up or a captive service company. The investor usually pays more than book value, and DCF supports that price. The floor then sits at or below the agreed price, and the deal passes.

DCF has a weakness for a transfer from a non resident to a resident. There the value is a ceiling. An optimistic DCF raises the ceiling and helps the seller. A conservative DCF can block a fair commercial price. The valuer should use the same assumptions it would use for an inbound issue.

FEMA does not ask for the valuation to follow a particular standard by name. We ask valuers to state the method, the valuation date, the key inputs and the sources of the projections. That gives the AD bank and RBI what they need if they ask.

How old can the valuation report be?

The certificate must not be more than 90 days old on the date of the investment. Paragraph 8.11 of the RBI Master Direction on Foreign Investment sets the limit. The certificate "must not be more than ninety days old as on the date of the investment". If the money arrives or the shares move after day 90, the company needs a fresh certificate before it allots or the parties close.

The NDI Rules themselves do not state 90 days. The limit comes from the Master Direction, which AD banks apply when they process Form FC-GPR or Form FC-TRS. The Master Direction does not define "the date of the investment".

We count the 90 days from the date on the certificate. For a fresh issue we treat the investment date as the date the money reaches the company's account. For a transfer we use the earlier of the share transfer and the payment. Some AD banks ask that the certificate also predate the board resolution. We plan the dates so that every reading passes.

A certificate has two dates. The valuation date is the cut off for the financial data, often a month end. The report date is the day the valuer signs. The 90 day count runs from the report date in our practice. A stale valuation date with a fresh report date still invites questions, so we keep the gap under three months.

Event	Rule	Day count in our example
Valuer signs the FEMA certificate	Report date starts the 90 days	Day 0 (1 Jul 2026)
Board approves the issue and the offer letter	Section 42 of the Companies Act, 2013; rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014	Day 10
Money reaches the company's bank account	Date of the investment, in our reading	Day 45 (15 Aug 2026)
Latest date for that money under the certificate	Paragraph 8.11	Day 90 (29 Sep 2026)
Allotment of shares	Within 60 days of receipt of money	By 14 Oct 2026
Refund if not allotted	Within 15 days after the 60 days	By 29 Oct 2026
Form FC-GPR on FIRMS	Within 30 days of allotment	30 days from the allotment date

The 60 day allotment rule and the 30 day FC-GPR limit come from FEMA 395/2019-RB, the reporting regulations. The Master Direction on Reporting under FEMA repeats them. Our note on the FC-GPR timeline covers the filing.

How are CCPS, CCDs and other convertible instruments priced?

For CCPS and CCDs, the price or the conversion formula must be fixed at the time of issue. The price at conversion can never be lower than the fair value worked out when the instrument was issued. This comes from the Explanation to rule 21(2)(a). So the company values once, at issue, and not again at conversion.

The Explanation asks for "the price/ conversion formula" to be "determined upfront at the time of issue of the instrument". The price at conversion "should not in any case be lower than the fair value worked out, at the time of issuance". Paragraph 8.1.2 of the Master Direction repeats the rule.

Two practical results follow.

1. A down round anti dilution clause can only work above the floor. If the clause would cut the conversion price below the fair value at issue, FEMA blocks that part. The investor gets fewer shares than the clause promises.
2. A valuation cap that floats with a future round does not fit FEMA for a non resident. The formula must be fixed at issue, and the outcome must respect the floor.

Company law offers a second route for convertible securities. Rule 13 of the Share Capital Rules gives two options for convertible securities. A company can fix the conversion price at the offer. It can also fix it near the conversion date on a fresh registered valuer report. For a non resident holder, FEMA rules out the later route because the formula must be fixed upfront. We draft the term sheet for the FEMA test first and then fit company law inside it.

Partly paid shares and warrants follow the same idea. The price is fixed at issue. At least 25 percent of the consideration comes upfront. Paragraphs 4.3 and 4.4 of the Master Direction set the balance period. It is 12 months for partly paid shares and 18 months for warrants.

Instrument	Valuation needed	Price fixed when	Conversion or call rule
Equity shares	At issue	At issue	Not applicable
CCPS	At issue	Price or formula at issue	Conversion price not below fair value at issue
CCDs	At issue	Price or formula at issue	Same as CCPS
Partly paid shares	At issue	At issue	25% upfront, balance within 12 months
Share warrants	At issue	Price and formula at issue	At least 25% upfront, balance within 18 months
Convertible note (start up)	Not under rule 21 at issue in our reading; a transfer follows the pricing guidelines under rule 18(5)	Terms in the note	Conversion within 10 years; minimum INR 25 lakh a tranche
Optionally convertible debenture	Not an equity instrument	ECB rules	ECB framework applies

How is a share swap priced?

A swap issues or transfers Indian shares in exchange for other shares instead of cash. Under rule 21(2)(c)(iv), a SEBI registered merchant banker must value a swap. An investment banker outside India, registered with the appropriate regulator, may value it instead. This applies "irrespective of the amount". A Chartered Accountant certificate is not enough for a swap.

Rule 9A of the NDI Rules allows two kinds of swap. One is a swap of equity instruments of Indian companies. The other is a swap with the equity capital of a foreign company, which also brings in the overseas investment rules. The Foreign Exchange Management (Non Debt Instruments) (Fourth Amendment) Rules, 2024, S.O. 3492(E) of 16 Aug 2024, added the cross border swap route.

Both sides of a swap need a value. The Indian shares need a fair value under rule 21. The foreign shares need a value under the overseas investment rules. We ask one merchant banker to value both, with the same valuation date, so the ratio holds together.

A swap still needs government approval where the sector or the investor needs it. One example is an investor with a beneficial owner in a country sharing a land border with India. Our note on FDI automatic route sectors has the sector list.

How are rights issues and bonus shares priced for a non resident?

A rights issue by an unlisted company to a non resident cannot be at a price below the price offered to residents. The FEMA test is equality with residents, not a separate fair value floor. A non resident who buys renounced rights from a resident must pay at least fair value under rule 21. Bonus shares carry no price.

Rule 7 of the NDI Rules covers rights and bonus issues. A non resident can take its own entitlement at the same price as resident members. That price may be below fair value, which is common when the parent funds the subsidiary at face value. The equality test protects residents, not the foreign exchange position.

Rule 7A covers a different case. Here a resident renounces its rights in favour of a non resident. The non resident may then acquire shares against those rights "as per pricing guidelines specified under rule 21". That needs a fair value certificate.

Case	FEMA price test	Valuation certificate
Non resident takes its own rights entitlement	Not less than the price offered to residents	Not needed for FEMA
Non resident takes rights renounced by a resident	Rule 21 fair value	Needed
Resident takes rights renounced by a non resident	Rule 21 ceiling in our reading, as a transfer to a resident	We obtain one
Bonus shares	No price	Not needed
Listed company rights issue	SEBI price	SEBI rules

Because a rights issue at face value has no FEMA valuation floor, it suits a parent that owns 100 percent. Where a minority resident holder exists, every renunciation needs a value.

Does angel tax still apply in 2026?

No. Angel tax under section 56(2)(viib) of the Income Tax Act, 1961 does not apply from assessment year 2025-26. The Finance (No. 2) Act, 2024 ended it with effect from 1 Apr 2025. So shares issued on or after 1 Apr 2024, in financial year 2024-25, are outside it.

The Income Tax Act, 2025, in force from 1 Apr 2026, has no successor provision. A premium above fair market value is no longer taxed as the company's income.

Section 56(2)(viib) taxed a closely held company that issued shares above face value for more than their fair market value. The excess counted as the company's income from other sources. The Finance Act, 2023 widened it to non resident investors from assessment year 2024-25. Rule 11UA(2) then set the methods for that value.

The section 56 text on the income tax website now carries a third proviso to clause (viib). It says the clause "shall not apply on or after the 1st day of April, 2025". The Finance (No. 2) Act, 2024 inserted it with effect from 1 Apr 2025.

The department's angel tax page, dated 30 Apr 2026, says the provisions "are not applicable with effect from Assessment Year 2025-26". The proviso's date of 1 Apr 2025 is the first day of assessment year 2025-26. It is not a cut off by date of issue. Assessment year 2025-26 is financial year 2024-25, which began on 1 Apr 2024. So the last issues exposed to angel tax were made up to 31 Mar 2024.

Section 92 of the Income Tax Act, 2025 lists income from other sources. It has no clause that taxes a premium on an issue of shares. Our overview of the Income Tax Act, 2025 maps the other sections.

Period of issue	Angel tax position	Law
Up to 31 Mar 2023 (to AY 2023-24)	Applied to resident investors only	Section 56(2)(viib), 1961 Act
1 Apr 2023 to 31 Mar 2024 (AY 2024-25)	Applied to resident and non resident investors	Section 56(2)(viib) as amended by Finance Act, 2023
1 Apr 2024 to 31 Mar 2026 (AY 2025-26 and 2026-27)	Does not apply	Third proviso to section 56(2)(viib), Finance (No. 2) Act, 2024
From 1 Apr 2026 (tax year 2026-27 onwards)	No such provision	Income Tax Act, 2025

Old cases still run. An assessment of an issue made up to 31 Mar 2024 is still open to the old rule. Keep the old valuation reports and any DPIIT exemption papers for those years.

Which income tax value tests remain after angel tax?

Three tests remain under the Income Tax Act, 2025. Section 92(2)(m) taxes a person who receives shares for less than fair market value by more than INR 50,000. Section 79 deems fair market value to be the sale price for a seller of unquoted shares. Rule 57 of the Income Tax Rules, 2026 sets that value by a book value formula.

The receiver test is the old section 56(2)(x). Section 92(2)(m) applies "where any person receives in any tax year, from any person or persons" property, which includes shares and securities. Sub clause (iii)(B) covers property other than immovable property. It applies where the consideration is less than aggregate fair market value "by an amount exceeding ₹ 50000". The taxed amount is the shortfall.

The seller test is the old section 50CA. Section 79 deems the fair market value of unquoted shares to be the consideration where the actual price is lower. Our guide to share transfers between residents and non residents works through it.

Rule 57 values unquoted equity shares as (A + B + C + D minus L) multiplied by PV and divided by PE. The rule gives no DCF option for equity shares.

In that formula, A is the book value of most assets. B is jewellery and art at market value. C is shares and securities at their own rule 57 value. D is immovable property at stamp duty value. L is book liabilities. PV is the paid up value of the shares being valued and PE is total paid up equity capital.

Old provision (1961 Act and Rules)	New provision (2025 Act and 2026 Rules)	What it does for share pricing
Section 56(2)(viib)	No successor	Premium above fair market value is not taxed
Section 56(2)(x)	Section 92(2)(m)	Taxes a buyer or allottee that pays below fair market value by more than INR 50,000
Section 50CA	Section 79	Deems fair market value as the seller's consideration for unquoted shares
Section 9(1)(viii)	Section 9(8)	Deems a sum paid by a resident to a non resident to arise in India; its text speaks of a sum of money, not of shares
Rule 11UA	Rule 57	Fair market value method (book value formula for unquoted equity)
Rule 11UA(2)	No successor	Old DCF or NAV choice for section 56(2)(viib)

Does section 92(2)(m) reach a fresh allotment, as opposed to a transfer? The section speaks of a person who "receives" property from "any person". It does not exclude an allotment. We have found no CBDT circular on the point under the 2025 Act. We test every allotment at a price below the rule 57 value. FEMA usually makes this rare for non residents, because they must pay at least FEMA fair value.

How do FEMA fair value and rule 57 value interact?

They answer different questions. FEMA fair value protects the foreign exchange position. A non resident pays at least that value on the way in and gets at most that value on the way out. Rule 57 protects the tax base, so nobody receives shares cheaply. Where both apply, the price must pass both.

For an issue to a non resident, the two tests point the same way. FEMA sets a floor. Section 92(2)(m) taxes a price below the rule 57 value. The safe price is the higher of the two values. For a growth company the DCF value is usually higher, so the FEMA floor governs.

For a transfer from a non resident to a resident, the tests can clash. FEMA caps the price at fair value. Rule 57 then taxes the resident buyer if that cap sits below the book value formula. This happens with asset heavy companies, such as those holding land at stamp duty value. Worked example B shows the cost.

Direction	FEMA test	Income tax test	Price that clears both
Issue to a non resident	At least FEMA fair value	Allottee taxed if price is below rule 57 value by more than INR 50,000 (our reading)	At least the higher of the two values
Issue to a resident	No FEMA test	Same receiver test; no angel tax on the company	At least rule 57 value to be safe
Transfer, resident to non resident	At least FEMA fair value	Section 79 for seller; section 92(2)(m) for buyer	At least the higher of the two values
Transfer, non resident to resident	At most FEMA fair value	Section 79 for seller; section 92(2)(m) for buyer	Between rule 57 value and FEMA fair value
Transfer, non resident to resident, rule 57 value above FEMA value	At most FEMA fair value	Applies at every FEMA compliant price	None; price at FEMA fair value and budget the tax

What happens if shares are issued below fair value?

An issue to a non resident below FEMA fair value breaches rule 21. The AD bank will not accept the Form FC-GPR as filed. The contravention attracts a penalty under section 13 of FEMA of up to three times the sum involved. The company can apply to RBI to compound it, usually after it corrects the shortfall.

Section 13(1) of the Foreign Exchange Management Act, 1999 sets the penalty. Where the amount is quantifiable, it is up to "thrice the sum involved in such contravention". Otherwise the cap is INR 2,00,000. A continuing contravention adds up to INR 5,000 a day. RBI's directions on compounding restate these limits and say RBI completes compounding within 180 days of receiving the application.

In our experience the AD bank catches most pricing errors at the FC-GPR stage. The bank compares the issue price with the certificate and checks the certificate's date. A mismatch comes back as a query. The usual fixes are these.

1. Before allotment, collect the shortfall from the investor so the price meets the floor, or refund the money and start again.
2. After allotment, the company files with the correct facts, and the contravention goes to RBI for compounding.
3. Where the certificate was more than 90 days old, obtain a fresh certificate as at the original date only if the valuer can support it. Otherwise treat it as a contravention.

Error	FEMA consequence	Income tax consequence	Fix
Issue to non resident below FEMA fair value	Breach of rule 21; FC-GPR query	Allottee taxed if price is also below rule 57 value (our reading)	Collect the shortfall before allotment, or compound
Certificate more than 90 days old	FC-GPR returned	None by itself	Fresh certificate before the money arrives
Valuer not on the permitted list	Certificate rejected	None by itself	New certificate by a CA, SEBI merchant banker or cost accountant
Swap valued by a CA	Breach of rule 21(2)(c)(iv)	None by itself	Merchant banker valuation; compound if allotted
Conversion below fair value at issue	Breach of the Explanation to rule 21(2)(a)	Possible section 92(2)(m)	Cap the adjustment; compound if converted
Non resident exits above fair value	Breach of rule 21(2)(c)	Seller gain at actual price	Reprice, or compound
Fixed return put option	Breach of rules 9(5) and 21(2)(c)	None directly	Remove the assured return before signing

Our guide to FEMA compounding explains the application, and our FEMA compliance service handles both the filing and the cure.

Which documents does the AD bank ask for?

For an issue, the AD bank asks for the FEMA valuation certificate, the board resolution, the foreign inward remittance certificate and KYC of the investor. The bank checks the price per share against the certificate and the certificate date against the money's arrival. For a transfer, it asks for the same certificate with the share purchase agreement.

Document	Issue (FC-GPR)	Transfer (FC-TRS)	Why the bank wants it
FEMA valuation certificate, within 90 days	Yes	Yes	Checks the floor or ceiling under rule 21
Registered valuer report under company law	For a preferential allotment	No	Company law price test, rule 13
Board resolution and shareholder resolution	Yes	Board noting of transfer	Shows the approved price
Foreign inward remittance certificate and KYC	Yes	Yes	Shows the money came through banking channels
Share purchase or subscription agreement	Usually	Yes	Shows the agreed price and any deferred part
Declaration on beneficial ownership and land border status	Yes	Yes	Rule 6(a) of the NDI Rules
Company secretary certificate	Yes	Not usually	Confirms company law and FEMA compliance
Merchant banker report	For a swap	For a swap	Rule 21(2)(c)(iv)

The fair value per share on the certificate should match the number keyed into FIRMS. We have seen filings return because the certificate stated an enterprise value and left the per share figure to the reader.

What do the draft Foreign Investment Rules, 2026 say about pricing?

The rules are still a draft. RBI placed the draft Foreign Exchange Management (Foreign Investment) Rules, 2026 on its website on 21 Jul 2026 for comments until 31 Aug 2026. The draft would replace the NDI Rules. Its rule 8(2) keeps the internationally accepted, arm's length method and the same three valuers.

RBI's press release of 21 Jul 2026, number 2026-2027/726, explains that a government committee reviewed the framework after the Union Budget 2026-27. The draft rules carry the heading "Draft" and are marked for publication in the Gazette, with the date left blank. Their opening words cite section 46 of FEMA and say they supersede the NDI Rules. Section 46 is the Central Government's power to make rules. So the final text needs a Central Government notification.

As we read the draft, rule 8(2) sets three cases. A company listed in India follows SEBI regulations. A public company listed on an international exchange follows Annexure I. All other cases use "any internationally accepted pricing methodology for valuation on an arm's length basis". A Chartered Accountant, a SEBI registered merchant banker or a cost accountant certifies it. Rule 8(3) exempts investment on a non repatriation basis.

The draft text we read does not repeat several NDI provisions. We did not find the upfront conversion formula for convertibles or the merchant banker rule for swaps.

Draft rule 8(2) says only that the price is determined by the method. It does not use rule 21's "not less than" and "shall not exceed" wording for unlisted companies. So the draft does not say in words whether fair value is a floor or a ceiling. That may change in the final text. Until the Central Government notifies new rules, rule 21 of the NDI Rules governs every issue and transfer.

What changed in 2026

The FEMA pricing rule itself did not change in 2026. Rule 21 reads the same on the RBI copy updated up to 2 Sep 2026. The law around it moved. A new Income Tax Act and a new fair market value rule took effect. Other parts of the NDI Rules changed, and RBI published a draft replacement for the whole framework.

Area	Before	Now	Date	Instrument
Income tax law	Income Tax Act, 1961	Income Tax Act, 2025	1 Apr 2026	Act 30 of 2025
Receiver of shares below fair market value	Section 56(2)(x)	Section 92(2)(m)	1 Apr 2026	Income Tax Act, 2025
Seller of unquoted shares below fair market value	Section 50CA	Section 79	1 Apr 2026	Income Tax Act, 2025
Fair market value rule	Rule 11UA	Rule 57	1 Apr 2026	Income Tax Rules, 2026, G.S.R. 198(E) of 20 Mar 2026
Angel tax	Section 56(2)(viib) switched off from AY 2025-26	No successor	1 Apr 2026	Income Tax Act, 2025
Land border beneficial ownership	No defined test	PML rule 9(3) test; up to 10% non controlling stays automatic	1 May 2026	NDI (Amendment) Rules, 2026, S.O. 2174(E) of 1 May 2026, Explanation 1 to rule 6(a); Cabinet decision of 10 Mar 2026
Listed equity by individual non residents	NRIs and OCIs only	All individuals resident outside India, with higher limits	12 Jun 2026	NDI (Third Amendment) Rules, S.O. 3030(E); A.P. (DIR Series) Circular No. 14 of 15 Jun 2026
Master Direction on Foreign Investment	Updated to 20 Jan 2025	Updated to 15 Jun 2026; paragraph 8 unchanged in substance	15 Jun 2026	RBI
Replacement of the NDI Rules	None	Draft Foreign Investment Rules, 2026 for comment	21 Jul 2026 (comments closed 31 Aug 2026)	RBI press release 2026-2027/726
Rule 21 pricing	Floor, ceiling, three valuers, convertible formula upfront	Unchanged	Not applicable	NDI Rules, RBI copy updated up to 2 Sep 2026

For an issue made on or after 1 Apr 2026, apply the 2025 Act tests. For an issue between 1 Apr 2024 and 31 Mar 2026, the 1961 Act applies, without angel tax. For an earlier issue, angel tax can still arise in an open assessment.

Worked example

Example A with CCPS issued to a US parent

A Delaware parent funds its Indian Private Limited subsidiary with CCPS. The facts are these.

• A Chartered Accountant signs a DCF certificate on 10 Aug 2026. It values each equity share at INR 412.
• The board fixes the CCPS issue price at INR 412 (face value INR 10, premium INR 402).
• The parent remits USD for 50,000 CCPS. The money reaches the company on 25 Sep 2026.
• The terms convert one CCPS into one equity share, with a down round adjustment.

Item	Working	Amount (INR)
Issue price per CCPS	Equal to FEMA fair value	412
Number of CCPS	Given	50,000
Total subscription	50,000 × 412	2,06,00,000
Share capital (face value)	50,000 × 10	5,00,000
Securities premium	50,000 × 402	2,01,00,000
Days from certificate to receipt of money	10 Aug to 25 Sep 2026	46 days (within 90)
Latest allotment date	60 days from 25 Sep 2026	24 Nov 2026

The company allots on 5 Oct 2026. FC-GPR is due within 30 days, by 4 Nov 2026.

In 2028 the company raises a new round at INR 300 a share. The down round clause would cut the CCPS conversion price to INR 300.

Conversion price	Working	Equity shares on conversion
INR 300 under the clause	2,06,00,000 ÷ 300	68,666
INR 412 floor under FEMA	2,06,00,000 ÷ 412	50,000
Shares FEMA blocks	68,666 minus 50,000	18,666

The Explanation to rule 21(2)(a) bars a conversion price below INR 412. The parent receives 50,000 shares, not 68,666. The term sheet should say so in 2026, so nobody expects the extra 18,666 shares.

On income tax, no angel tax arises on the INR 2,01,00,000 premium. CCPS are unquoted shares other than equity, so rule 57 tests the open market price and not the book value formula. The parent pays the certified arm's length value, so no shortfall arises under section 92(2)(m).

Example B with a Singapore holder selling to an Indian founder

A Singapore company sells 20,000 equity shares of an unlisted Indian company to the resident founder. The company owns land.

• A merchant banker's DCF certificate puts FEMA fair value at INR 250 a share. That is the ceiling under rule 21(2)(c).
• Rule 57 gives INR 280 a share, because the land enters at stamp duty value.
• The parties agree INR 250 a share, the highest price FEMA allows.

Item	Working	Amount (INR)
Price paid	20,000 × 250	50,00,000
Rule 57 value	20,000 × 280	56,00,000
Shortfall	56,00,000 minus 50,00,000	6,00,000
Threshold under section 92(2)(m)(iii)(B)	Fixed	50,000
Income of the buyer from other sources	Shortfall exceeds threshold, so the whole shortfall	6,00,000
Deemed consideration for the seller	Section 79	56,00,000

FEMA leaves no room to pay INR 280. The founder pays tax on INR 6,00,000 at the slab rate. The seller computes its gain on INR 56,00,000, not INR 50,00,000. Both parties should budget the cost before signing. A different structure, such as a buy back, may change the outcome and needs its own analysis.

Common mistakes

1. The certificate is more than 90 days old when the money arrives. Fix: bank the money within 90 days of the certificate.
2. The certificate gives an enterprise value but no per share value. Fix: ask the valuer to state fair value per share for each class.
3. A Chartered Accountant values a share swap. Fix: use a SEBI registered merchant banker or a regulated investment banker abroad.
4. A CCPS formula floats with a future round. Fix: fix the formula at issue and cap any adjustment at the fair value at issue.
5. The company relies on the FEMA certificate for company law. Fix: add a registered valuer report under rule 13 of the Share Capital Rules.
6. The shareholders' agreement promises the investor a fixed exit return. Fix: remove the assured return and price any option at fair value on exit.
7. A non resident's exit price exceeds fair value. Fix: obtain the certificate first and cap the price at it.
8. The parties assume angel tax rules still drive the price. Fix: for issues from 1 Apr 2024, test the receiver's position instead. Use rule 11UA up to 31 Mar 2026 and rule 57 after that.
9. Renounced rights go to a non resident at the resident price. Fix: obtain a rule 21 certificate under rule 7A.
10. A company treats the draft 2026 rules as law. Fix: follow rule 21 of the NDI Rules until the final rules are notified.

Checklist

1. Confirm the sector, entry route and land border status of the investor or buyer.
2. Classify the deal as an issue, a transfer in, a transfer out, a rights issue, a renunciation or a swap.
3. Choose the valuer: a CA, SEBI merchant banker or cost accountant, or a merchant banker for a swap.
4. Appoint a registered valuer as well if the issue is a preferential allotment.
5. Agree the method and the valuation date with the valuer.
6. Obtain a certificate that states fair value per share for each class.
7. Fix the price or conversion formula for any convertible instrument at issue.
8. Compute the rule 57 value and test sections 79 and 92(2)(m).
9. Time the money to arrive within 90 days of the certificate date.
10. Allot within 60 days of receiving the money, or refund within the next 15 days.
11. File FC-GPR within 30 days of allotment, or FC-TRS within 60 days of the transfer or payment, whichever is earlier.
12. Keep the certificate, workings and board papers for later queries.

If you want us to review a term sheet against these tests, write to us through the contact page.

Frequently Asked Questions

Is a valuation certificate needed when a foreign parent subscribes at face value?+

It depends on the route. Subscriber shares at incorporation are issued at face value under rule 21(2)(c)(v) without a certificate. A rights issue needs only the resident price under rule 7. A preferential or private placement allotment at face value still needs a FEMA certificate, and face value must be at least the certified fair value.

Can a Chartered Accountant who is the company's statutory auditor sign the FEMA certificate?+

Rule 21 of the NDI Rules does not bar the auditor by name. It only requires a Chartered Accountant, a SEBI registered merchant banker or a practising cost accountant. Auditor independence rules under the Companies Act and ICAI guidance may still restrict it. We prefer an independent valuer so the AD bank and any later reviewer see no conflict.

Does a DCF valuation need projections approved by the board?+

FEMA does not say so in words. The valuer relies on management projections, and the certificate is only as strong as them. We ask the board to approve the business plan that feeds the DCF, and we keep the minutes with the certificate. That answers most AD bank and RBI questions.

Is the 90 day limit counted from the valuation date or the report date?+

Paragraph 8.11 of the Master Direction says the certificate must not be more than 90 days old on the date of the investment. It refers to the certificate, so we count from the report date. We also keep the valuation date close to the report date, because a stale cut off date invites questions from the AD bank.

Do bonus shares to a non resident need a valuation?+

No. Bonus shares carry no price, so rule 21 has nothing to test. Rule 7 of the NDI Rules permits bonus issues to non residents, subject to the sectoral cap. The company reports the bonus issue in the usual way and keeps the board and shareholder resolutions on file.

Can the conversion ratio of CCPS improve after a down round?+

Only down to the fair value at issue. The Explanation to rule 21(2)(a) says the price at conversion cannot be lower than the fair value worked out at issue. An anti dilution clause can adjust the ratio until the conversion price reaches that floor. It cannot go further for a non resident holder.

Does FEMA pricing apply to an Indian company owned by a foreign parent investing downstream?+

Yes. Rule 23(1) of the NDI Rules covers an Indian entity that has received indirect foreign investment. It must comply with the entry route, sectoral caps, pricing guidelines and other attendant conditions. So when a foreign owned and controlled Indian company invests downstream, the downstream company needs a rule 21 certificate for the issue.

Does a resident buying from a non resident need a certificate even at book value?+

Yes. Rule 21(2)(c) caps the price at certified fair value, and the AD bank checks that cap at the FC-TRS stage. Without a certificate the bank cannot see the cap. Compute the rule 57 value at the same time. Any gap under section 92(2)(m) of the Income Tax Act, 2025 then shows before the price is fixed.

Is angel tax relevant for a DPIIT recognised start up in 2026?+

No, for issues on or after 1 Apr 2024. Section 56(2)(viib) of the 1961 Act does not apply from assessment year 2025-26, and the Income Tax Act, 2025 has no successor. DPIIT recognition still matters for convertible notes under rule 18 of the NDI Rules and for other start up benefits.

What valuation does income tax use for unquoted preference shares?+

Rule 57 of the Income Tax Rules, 2026 covers unquoted shares other than equity. It values them at the price they would fetch in the open market on the valuation date. The assessee may obtain a report from a merchant banker or an accountant. Only unquoted equity shares use the book value formula.

Can a non resident pay for shares from an account outside India in its own currency?+

Yes, through banking channels. The money comes as an inward remittance to the company's bank account in India, or from the investor's NRE or FCNR account where eligible. The AD bank issues the inward remittance certificate and KYC report that support FC-GPR. The FEMA price is compared in rupees at the rate on the receipt date.

What if the agreed price is fixed in dollars and the rupee moves before closing?+

The rupee amount received must still meet the floor. Compare the rupee value credited to the company with the certificate's fair value per share. If the rupee strengthens, the rupee proceeds fall and can dip below the floor. We build a small cushion above fair value into the issue price for this reason.

Are compulsorily convertible debentures equity or debt for FEMA?+

Equity, if they are fully, compulsorily and mandatorily convertible. The NDI Rules then treat them as equity instruments, subject to rule 21. A debenture with any option not to convert is debt. It falls under the external commercial borrowing rules instead, with their own cost and maturity limits.

Can a company issue shares to a non resident below fair value and file a correction later?+

Not safely. An issue below fair value breaches rule 21 from the day of allotment. The usual cure is compounding with RBI under section 15 of FEMA. Collecting the shortfall before allotment is far cheaper. If the money is already in, ask the investor to top up before the board allots.

Does the 90 day rule apply to a transfer as well as an issue?+

Yes. Paragraph 8.11 of the Master Direction applies to every certificate used for the pricing guidelines. For a transfer, we read the date of the investment as the earlier of the share transfer and the payment. The FC-TRS clock is 60 days from that earlier date under regulation 4(3) of FEMA 395/2019-RB.

Do the draft Foreign Investment Rules, 2026 change who can value shares?+

No, as the draft reads today. Draft rule 8(2) names a Chartered Accountant, a SEBI registered merchant banker or a cost accountant, the same three as rule 21. The draft is not law. RBI took comments until 31 Aug 2026. We found no final notification on the RBI website as of 2 Oct 2026.

Sources

• Reserve Bank of India, Foreign Exchange Management (Non Debt Instruments) Rules, 2019 (updated up to 2 Sep 2026), rules 2, 7, 7A, 9, 9A, 18 and 21, https://www.rbi.org.in/scripts/bs_viewcontent.aspx?Id=5083
• Reserve Bank of India, Master Direction on Foreign Investment in India (updated up to 15 Jun 2026), paragraphs 4.3, 4.4, 8.1 to 8.11, https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=11200
• Reserve Bank of India, Master Direction on Reporting under FEMA, https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10202
• Reserve Bank of India, Foreign Exchange Management (Mode of Payment and Reporting of Non Debt Instruments) Regulations, 2019, FEMA 395/2019-RB, https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11723&Mode=0
• Reserve Bank of India, Press release 2026-2027/726, Rationalisation of Foreign Exchange Management (Non Debt Instruments) Rules, 2019, draft rules for comments, 21 Jul 2026, https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=63204
• Reserve Bank of India, Draft Foreign Exchange Management (Foreign Investment) Rules, 2026, rule 8, https://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=5122
• Reserve Bank of India, A.P. (DIR Series) Circular No. 14, 15 Jun 2026, on the NDI (Third Amendment) Rules, 2026, S.O. 3030(E) of 12 Jun 2026, https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=13483&Mode=0
• Ministry of Finance (Department of Economic Affairs), Foreign Exchange Management (Non Debt Instruments) (Fourth Amendment) Rules, 2024, S.O. 3492(E), 16 Aug 2024, https://static.pib.gov.in/WriteReadData/specificdocs/documents/2024/aug/doc2024816377701.pdf
• Reserve Bank of India, Master Direction on Compounding of Contraventions under FEMA, 1999 (section 13 penalties, 180 day limit), https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10190
• Income Tax Department, Section 56, Income Tax Act, 1961 (third proviso to clause (viib)), https://www.incometaxindia.gov.in/w/section-56-63
• Income Tax Department, Exemption from angel tax under section 56(2)(viib), 30 Apr 2026, https://www.incometaxindia.gov.in/w/exemption-from-angel-tax-section-56-2-viib-
• Income Tax Department, Section 92, Income Tax Act, 2025, https://www.incometaxindia.gov.in/w/section-92-109
• Income Tax Department, Section 79, Income Tax Act, 2025, https://www.incometaxindia.gov.in/w/section-79-115
• Income Tax Department, Section 9, Income Tax Act, 2025, https://www.incometaxindia.gov.in/w/section-9-1
• Income Tax Department, Rule 57, Determination of fair market value, Income Tax Rules, 2026, https://www.incometaxindia.gov.in/w/rule-57-4
• Income Tax Department, Income Tax Act, 2025 as amended by the Finance Act, 2026, https://www.incometaxindia.gov.in/documents/d/guest/income_tax_act_2025_as_amended_by_fa_act_2026-pdf
• Securities and Exchange Board of India (hosted copy), Companies (Share Capital and Debentures) Rules, 2014, rule 13, https://www.sebi.gov.in/sebi_data/attachdocs/apr-2017/1492085873402.pdf