Two Separate Requirements for Indian Dual-Structure Startups
If your Indian startup has both a Delaware C-Corp parent and an Indian Private Limited operating subsidiary, you likely need both a 409A valuation and a FEMA valuation — for different transactions, governed by different laws, and produced by different types of qualified professionals.
Confusing these two requirements — or assuming one covers the other — is a compliance mistake that can result in serious penalties.
The 409A Valuation (US Requirement)
| Element | Details |
|---|---|
| Governing law | IRC Section 409A (US federal) |
| Required for | Setting exercise price of stock options granted by the Delaware entity |
| Qualified valuer | Independent US appraiser with CVA, ABV, CFA, or equivalent credential |
| Methodology | DCF, GPC market comps, backsolve, OPM equity allocation |
| Frequency | Every 12 months or after any material event |
| Penalty for non-compliance | 20% additional federal tax + income tax + interest per affected employee |
| Cost | $1,099–$3,499 depending on stage |
The FEMA Valuation (India Requirement)
| Element | Details |
|---|---|
| Governing law | Foreign Exchange Management Act, 1999 + NDI Rules, 2019 |
| Required for | Issue or transfer of shares of an Indian entity involving foreign currency |
| Qualified valuer | SEBI-registered Category I Merchant Banker (for unlisted companies); or Chartered Accountant using DPIIT methods |
| Methodology | DCF, Net Asset Value, or other DPIIT-approved method |
| Frequency | For each relevant transaction |
| Penalty for non-compliance | Up to 300% of the foreign exchange amount involved under FEMA Section 13 |
| Cost | ₹75,000–₹2,50,000 typically |
When Each Is Triggered?
409A is triggered when:
- You plan to grant stock options from the Delaware entity
- Your existing 409A is 12+ months old
- You have closed a new funding round in the Delaware entity
FEMA valuation is triggered when:
- A foreign investor (including the Delaware parent) invests in the Indian subsidiary
- Shares of the Indian entity are transferred to or from a foreign entity or person
- The Indian entity issues new shares to foreign investors (FDI)
- An Indian shareholder sells shares to a foreign buyer
Common Scenario: Series A Round
A typical Indian startup raising Series A from a US VC needs:
- FEMA valuation — if the US VC is investing directly into the Indian subsidiary
- 409A valuation — before issuing post-Series A options from the Delaware parent to employees
We handle the 409A. For FEMA valuations, engage a SEBI-registered merchant banker.
Which Indian Statute Applies Now?
India replaced the Income-tax Act, 1961 with the Income-tax Act, 2025, effective 1 April 2026. The Income-tax Rules, 1962 were likewise replaced by the Income-tax Rules, 2026.
- Income earned from 1 April 2026 onward (Tax Year 2026–27) is governed by the Income-tax Act, 2025.
- Earlier years, and proceedings already under way, continue to be governed by the Income-tax Act, 1961.
The new Act is substantially a recodification: section numbers were reorganised throughout, but the treatment of ESOP perquisites was not rewritten in substance. Older guidance citing 1961 Act section numbers may still describe the correct position while pointing at a section number that no longer exists.
Because section mapping is still settling in practice, confirm the current section reference with your Chartered Accountant before relying on any specific number.
Sources
- Income-tax Act, 2025 — in force from 1 April 2026 (replacing the Income-tax Act, 1961)
- Income-tax Rules, 2026 — notified 20 March 2026 (replacing the Income-tax Rules, 1962)
- Income-tax Act, 1961, s.17(2)(vi) — ESOP perquisite valuation; applies to years before Tax Year 2026–27
- Foreign Exchange Management (Non-debt Instruments) Rules, 2019 — pricing guidelines for unlisted equity
- Companies Act, 2013, s.62(1)(b) and Companies (Share Capital and Debentures) Rules, 2014 — ESOP issuance by unlisted companies
General information, not tax or legal advice. Indian tax and exchange-control provisions were comprehensively renumbered with effect from 1 April 2026 — confirm current section references with a Chartered Accountant.