(INDIA) – India’s abolition of the so-called angel tax from Assessment Year 2025-26 removed one source of litigation over share premiums, but it did not end the need to value shares in private companies, start-ups and cross-border deals. Companies still need defensible valuations for company law, FEMA, accounting, investor diligence, commercial negotiations and other tax provisions that turn on fair market value.

That continuing need keeps two familiar approaches in focus: the DCF method, or Discounted Cash Flow, and the NAV method, or Net Asset Value. They rest on different ideas. DCF measures expected future cash flows and discounts them to a present value. NAV starts with the balance sheet and works from assets minus liabilities.

The repeal of Section 56(2)(viib) changed the tax treatment of excess share premium in the issuing company’s hands. It did not erase valuation discipline. Founders, NRIs, overseas investors and tax advisers still face the same practical question when a company issues shares at a premium: what supports the price?

Under the old law, Section 56(2)(viib) applied to closely held companies that issued shares above fair market value. If a private company issued a share with face value of ₹10 at an issue price of ₹500, and the fair market value stood at ₹300, the excess ₹200 per share could be taxed as income from other sources, subject to the conditions in the law.

The provision aimed to stop unaccounted money from entering closely held companies through inflated share premium. In practice, it also pulled genuine start-up fundraising into disputes over assumptions, projections and fair market value, especially when investors paid for future potential rather than present assets.

Rule 11UA of the Income-tax Rules, 1962 supplied the valuation framework for that older regime. The charging provision sat in Section 56(2)(viib). Rule 11UA prescribed how fair market value had to be determined, including recognised methods for unquoted equity shares such as NAV and DCF, subject to the prescribed conditions.

NAV works from a company’s current financial position. The broad formula is direct: total assets minus total liabilities equals net asset value, and that figure is then divided by the number of shares to reach a value per share.

A simple example shows the mechanics. If total assets are ₹10 crore and total liabilities are ₹4 crore, the net asset value is ₹6 crore. If the company has 6 lakh shares, the value per share comes to ₹100.

That balance-sheet approach often suits asset-heavy businesses such as real estate companies, investment holding companies, manufacturing units with substantial fixed assets, and companies that own land, buildings, plant or machinery. The method is easier to verify because it ties closely to recorded assets and liabilities. It can also miss a business’s upside when growth, technology, brand or market reach drives investor interest more than physical assets do.

DCF takes the opposite route. It values a company on the cash the business is expected to generate in future and discounts those expected cash flows back to the valuation date. The exercise turns on projected revenue, expenses, margins, cash flows, growth rate, discount rate, terminal value and business risk.

That makes DCF the more natural fit for start-ups, technology companies, growth-stage firms and businesses with limited present assets but high expected scale. Investors in those companies often price future earning capacity, not the current balance sheet. A thin asset base does not always imply a low value if the company can show a credible path to revenue growth and cash generation.

DCF also attracts more scrutiny because it depends on projections. A company may forecast strong revenue and later fall short because of competition, regulation, funding stress or business failure. That gap does not automatically invalidate the valuation. DCF measures value on the valuation date, using estimates available at that time, not the benefit of hindsight.

Choice of method sits first with the company at the time of valuation, provided the law permits that method and the company meets the conditions attached to it. In older angel tax disputes under Rule 11UA, an assessee could adopt a recognised method, but a DCF valuation had to rest on a proper report from an eligible valuer, such as a merchant banker where required.

An Assessing Officer could test that report, but not discard it simply because another approach produced a lower number. The officer could examine whether the assumptions had support, whether the figures were reliable, whether the method had been applied correctly and whether the valuation date matched the transaction. The officer could not replace a valid DCF exercise with NAV just because NAV generated a lower fair market value.

That distinction matters in disputes over method switching. A company that issued shares on the strength of a DCF report is generally expected to stand by DCF during assessment. A company that used NAV is expected to stand by NAV. Casual switching later in appeal or assessment, solely because the alternative produces a more convenient number, does not fit the structure of the old rule.

Taxpayers still retained room for alternative legal arguments on a without-prejudice basis. That is not the same as rewriting the valuation foundation after the shares have already been issued. The line is between defending the chosen method and attempting a wholesale change to justify a higher premium after the fact.

An Assessing Officer could question the valuation when real defects appeared. Several grounds stood out: an ineligible valuer, unsupported projections, arbitrary assumptions, manipulated figures, wrong data, improper application of the method, the wrong valuation date, a mechanical report without reasoning, or evidence that the premium itself was not genuine.

Those grounds kept scrutiny alive even before the angel tax provision disappeared. They also explain why abolition of the levy drew support from start-ups and investors. The problems had become familiar: businesses with future potential were judged against current assets, DCF projections were compared with later actuals, genuine commercial valuations met suspicion, foreign investment became harder to structure, litigation rose and compliance costs mounted.

The government abolished the provision for all classes of investors from AY 2025-26. Under the reorganised framework of the Income-tax Act, 2025, income from other sources sits in Section 92, while the old dispute over excess share premium under Section 56(2)(viib) no longer applies from AY 2025-26. The fair market value concept still survives elsewhere, including cases involving shares or securities received without consideration or for inadequate consideration.

That leaves valuation relevant well beyond the old angel tax fights. FEMA pricing guidelines still matter where an Indian company issues shares to a non-resident or NRI. Share transfers, family arrangements, gifts, inheritance planning, mergers, restructuring, audit work and commercial due diligence can all require a supportable fair market value. The labels changed in part; the valuation work did not.

The post-abolition position becomes clearer in common examples. A company issuing shares at a premium in AY 2025-26 no longer faces the specific angel tax addition under Section 56(2)(viib), but it still needs valuation support for Companies Act compliance, FEMA and investor review. An NRI investing in an Indian private company still has to reckon with pricing norms and documentation. A transfer of shares at an undervalue can still trigger fair market value questions under other provisions.

Method selection now turns less on one repealed provision and more on the nature of the business and the rulebook that governs the transaction. A technology platform raising venture capital may find that the DCF method better reflects commercial value. A real estate holding company may fit the NAV method more closely. A manufacturing business with substantial assets and steady cash flows may have to examine both approaches before settling on one.

The practical safeguard remains the same: a valuation report needs support beneath it. Companies that maintain projected financials, board-approved business plans, investor documents, assumptions behind revenue and working capital, discount rate calculations, terminal value workings and statutory filings put themselves in a stronger position when regulators or tax officers test the numbers. After the end of angel tax, that record often matters more than the label on the method.