The question founders ask first about an ESOP valuation is what it costs. The question that saves money is which valuation they actually need, because an ESOP can require three different numbers from two different kinds of professional, and paying for the wrong one is the most expensive mistake in the process. This article sets out the reports, who is allowed to sign each, what drives the fee, how long each step takes, and the documents to have ready before you ask for a quote.
For an unlisted company, a grant-date fair value report for the accounts (Black-Scholes under Ind AS 102 or the ICAI Guidance Note) typically costs ₹20,000 to ₹35,000 per grant cycle and takes 5 to 10 working days after complete data. The fair market value of the shares on exercise, used for the employee's perquisite tax, must be determined by a SEBI category I merchant banker under Rule 15 of the Income-tax Rules, 2026; the merchant banker prices that separately.
Which report you need, and who can sign it
An employee stock option plan in a private company touches company law, accounting and income-tax, and each regime asks its own valuation question. The table below is the map. It is the single most useful thing to settle before you request a quote, because it decides whether you need one professional or two. Our ESOP valuation services page explains how we handle each piece.
| Valuation | Purpose | Who signs | Rule |
|---|---|---|---|
| Share value at grant | Supports the exercise price approved by the board; referred to in the scheme documents | No signatory prescribed for an unlisted company. Usually an IBBI registered valuer's share valuation | Section 62(1)(b), Companies Act, 2013; Rule 12, Companies (Share Capital and Debentures) Rules, 2014 |
| Option fair value at grant | The employee benefit expense over the vesting period | Any competent valuer; reviewed by the statutory auditor | Ind AS 102, or the ICAI Guidance Note on Accounting for Share-based Payments (Revised 2020) |
| Share FMV on exercise (unlisted) | The perquisite taxed as salary, TDS by the employer, and the employee's cost of acquisition | A SEBI category I merchant banker, on the exercise date or up to 180 days before it | Section 17(1)(d), Income-tax Act, 2025; Rule 15, Income-tax Rules, 2026 |
| Share FMV on exercise (listed) | Same as above | Nobody; the exchange price on the exercise date | Rule 15, Income-tax Rules, 2026 |
| Later transfer of the shares | An employee sells to a founder or another shareholder | No signatory; the net-asset formula from an audited balance sheet | Rule 57, Income-tax Rules, 2026; sections 79 and 92(2)(m) of the 2025 Act |
Sources: Income-tax Rules, 2026, Rules 15 and 57; Companies Act, 2013, section 62(1)(b); Companies (Share Capital and Debentures) Rules, 2014, Rule 12. "Merchant banker" in Rule 15 means a category I merchant banker registered with SEBI.
Two points in that table cause most of the confusion. First, the Companies Act does not require a registered valuer's report for an unlisted company to grant options; Rule 12 leaves the exercise price to the company, in conformity with its accounting policies. A valuation at grant is a matter of good practice and of the accounts, not of an ROC filing. Second, the tax value at exercise is not something an IBBI registered valuer can sign, however experienced. If someone offers you "an ESOP valuation that covers everything", ask which of these rows it covers and in what capacity it is signed.
What an ESOP valuation costs
These are our indicative fees for an unlisted company. They are professional fees for the work we sign or perform; a merchant banker's fee for the exercise-date valuation is quoted and billed by the merchant banker.
| Work | Typical scope | Indicative fee |
|---|---|---|
| ESOP fair value (grant-date, Black-Scholes, Ind AS 102 / Guidance Note) | Share valuation at grant, tranche-wise option values, input schedule, sensitivity, expense schedule over the vesting period; per grant cycle | ₹20,000 – ₹35,000 |
| ESOP perquisite support on exercise | Information pack and reconciliation for the merchant banker's valuation, perquisite and TDS working per employee, cost-of-acquisition record | ₹10,000 – ₹20,000 |
| Rule 57 FMV report | If exercised shares are later transferred between shareholders | ₹15,000 – ₹25,000 |
Indicative professional fees for typical engagements, excluding GST, government/ROC fees, stamp duty and any merchant banker's fee. The final fee depends on scope and volume and is confirmed in writing before work starts. Fees are subject to change without notice.
What drives the fee
The size of the company has surprisingly little to do with it. A ₹200 crore company with one class of shares and a single annual grant is cheaper to value than a two-year-old start-up with three rounds of preference shares and grants every month. The things that add work are:
- Number of grant dates. Each grant date needs its own share price, risk-free rate and volatility. Twelve monthly grants are close to twelve valuations. Two or four fixed grant dates a year, agreed with the board, is the simplest cost saving available.
- Number of tranches. Graded vesting over four years means four tranches per grant, each with its own expected term. This is routine, but it multiplies the schedules.
- Share classes and preferences. If investors hold CCPS with liquidation preferences, the price of the last round is not the price of an ordinary share. Allocating equity value between classes, usually by an option-pricing or scenario method, is the most technical part of a start-up ESOP valuation.
- Whether there is a recent priced round. A round between unrelated parties a few months before the grant is strong evidence and shortens the work. With no round, the share value rests on a DCF that has to be built and tested.
- Vesting conditions. Time-based vesting is valued with Black-Scholes. A condition linked to an exit valuation or a share price is a market condition, which needs a binomial or Monte Carlo model.
- Modifications. Repricing underwater options, accelerating vesting or extending the exercise window requires the fair value immediately before and after the change.
- Auditor interaction. First-year engagements usually involve a round of queries on the volatility peer set and the expected term. Agreeing those with the auditor at the start is cheaper than defending them at the end.
How long it takes
The working-day count that matters starts when the data is complete, not when the engagement letter is signed. For a typical grant-date valuation the sequence looks like this:
| Step | What happens | Typical time |
|---|---|---|
| 1. Scoping | We confirm the grants, the accounting framework and the reporting date, and send a checklist | 1 day |
| 2. Data collection | Scheme, grant letters, cap table, financials, projections, last round documents | 3 to 10 days, on the company's side |
| 3. Share valuation at grant | DCF and market evidence, allocation between share classes | 3 to 5 working days |
| 4. Option model | Tranche-wise Black-Scholes or lattice model, sensitivity, expense schedule | 1 to 2 working days |
| 5. Draft and review | Draft to management and the auditor; queries answered | 1 to 3 working days |
| 6. Signed report | Final report with input schedule and workings | Same or next day |
Steps 3 to 6 are the 5 to 10 working days. Where a share valuation already exists for the same date, step 3 shortens considerably.
At exercise, the clock belongs to the merchant banker. Two timing rules help. The specified date for the merchant banker's valuation can be up to 180 days before the exercise, so one valuation can cover a planned exercise window; and for an eligible start-up whose employees defer the tax, the perquisite is still fixed at exercise, so the valuation cannot be postponed to the date the tax is paid.
Documents checklist
Having these ready is the difference between the bottom and the top of the timeline range.
- ESOP scheme as approved by special resolution, and any amendments
- Board or compensation committee resolutions approving each grant, with the grant date
- Grant letters or a grant register: employee, number of options, exercise price, vesting schedule, exercise window
- Fully diluted cap table, including CCPS and their conversion terms, convertible notes, warrants and the unallocated pool
- Shareholders' agreement or articles extract with liquidation preference and anti-dilution terms
- Audited financial statements for the last two years and management accounts to the latest month-end
- Projections for three to five years with key assumptions, and the latest board-approved budget
- Term sheet and share subscription agreement of the most recent funding round
- Accounting framework (Ind AS or Accounting Standards), the reporting date and the auditor's contact
- For exercise: list of employees exercising, exercise dates, payroll data, and the DPIIT and Inter-Ministerial Board certificates if the start-up deferral is claimed
Four avoidable costs
The methods behind the share valuation, and the angel-tax and Rule 57 background, are in ESOP Valuation in India: Triggers, Methods and Tax. If the same company is also raising money from a foreign investor, the three-regime problem for the round itself is covered in FEMA vs Income-tax vs Companies Act valuation for a foreign investor.
Frequently Asked Questions
With us, a grant-date fair value report for an unlisted company typically costs ₹20,000 to ₹35,000 per grant cycle, and support for the exercise-date perquisite valuation ₹10,000 to ₹20,000, plus GST. The merchant banker's fee for the exercise-date valuation is separate. Fees depend on the number of grants, tranches and share classes, are confirmed in writing before work starts and are subject to change.
Typically 5 to 10 working days after complete data for a grant-date fair value report, including the share valuation underneath it. Collecting the scheme, grant letters, cap table and projections often takes longer than the valuation itself.
No. For shares not listed on a recognised stock exchange, Rule 15 of the Income-tax Rules, 2026 requires the fair market value on exercise to be determined by a SEBI category I merchant banker, on the exercise date or up to 180 days before it. A registered valuer can value the options for the accounts and the shares at grant.
Not under the Companies Act. Rule 12 of the Companies (Share Capital and Debentures) Rules, 2014 lets an unlisted company fix the exercise price in conformity with its accounting policies. A valuation is still needed for the option expense in the financial statements and is good practice for setting the exercise price.
Yes, for each grant date, because the share price, risk-free rate and volatility are measured on that date. Several grants made on the same date are valued together. Fixing two or four grant dates a year keeps the number of valuations down.
Companies outside Ind AS look to the ICAI Guidance Note on Accounting for Share-based Payments. Where the expense is measured at fair value, an option-pricing model such as Black-Scholes is needed in the same way. Confirm the measurement approach with your auditor before the valuation is commissioned.
Sources
- Authority: Central Board of Direct Taxes, Ministry of Finance. Title: Income-tax Rules, 2026, Rule 15 (valuation of perquisites; sub-rules on specified securities, definitions of merchant banker and specified date) and Rule 57. View Source. Accessed: October 2026.
- Authority: Ministry of Law and Justice. Title: Income-tax Act, 2025, section 17(1)(d). View Source. Accessed: October 2026.
- Authority: Ministry of Corporate Affairs. Title: Companies Act, 2013, section 62(1)(b); Companies (Share Capital and Debentures) Rules, 2014, Rule 12; Ind AS 102, Share-based Payment. View Source. Accessed: October 2026.
- Authority: The Institute of Chartered Accountants of India. Title: Guidance Note on Accounting for Share-based Payments (Revised 2020). View Source. Accessed: October 2026.
Planning your next grant cycle?
We value the options for your accounts as an IBBI Registered Valuer, quote a fixed fee before we start, and set out exactly what the merchant banker will need at exercise. See our ESOP valuation services.
Written by CA Karan Shah
Founder of KC Shah & Associates and an IBBI Registered Valuer (Securities or Financial Assets), Reg. No. IBBI/RV/06/2024/15561. Values private companies for share transfers, funding rounds, ESOPs and schemes, and provides outsourced accounting and Virtual CFO services to startups and SMEs across India.