Valuation Services
SEBI's 2025 Merchant Banker Rules — Can Your Valuer Still Sign Your ESOP Valuation?
Lekha Editorial Team
CA-reviewed · Published
If your company grants ESOPs, a merchant banker certificate is required each time an employee exercises. A change that took effect in January 2026 narrows who may issue one, and a transition window closes shortly.
What the amendment changed
SEBI notification SEBI/LAD-NRO/GN/2025/282, dated 3 December 2025 and issued with the SEBI (Merchant Bankers) (Amendment) Regulations 2025, restricts fresh valuation engagements to merchant bankers whose registration covers valuation-related activities, with effect from 2 January 2026. Assignments already under way may be completed within nine months of that date.
The amendment also re-categorised merchant bankers into Category I and Category II. This matters because Rule 3 of the Income-tax Rules specifies a Category I merchant banker for perquisite valuation of unlisted shares.
What it means in practice
It is no longer enough that your valuer is SEBI-registered. The registration must specifically cover valuation activities, and for ESOP perquisite work the merchant banker must be Category I.
A certificate issued by a merchant banker without that registration, for an engagement accepted after 2 January 2026, is defective — and your employees' perquisite computation and your TDS position rest on it.
- Confirm the registration covers valuation-related activities, not merchant banking generally
- Confirm Category I status for Rule 3 perquisite valuations
- Verify against SEBI's own register of intermediaries, not a certificate copy
- Re-verify at each engagement — registration can lapse between exercise windows
- If valuation is run through a Separate Business Unit, confirm which entity signs
An unresolved gap worth documenting
Rule 3 of the Income-tax Rules has not been correspondingly amended and still refers simply to a merchant banker. The tax rule and the securities regulation are therefore not fully reconciled.
The conservative reading — engage only merchant bankers holding valuation-activity registration — is the defensible position, because a certificate from a merchant banker who could not lawfully accept the engagement is the weaker document to hold if the valuation is later examined. Record the reasoning, and keep evidence of the registration you relied on.
Key takeaway
The transition window for in-flight assignments closes around 2 October 2026. If you expect an exercise event after that, confirm your merchant banker's registration now rather than discovering the problem when the certificate is needed.
Frequently asked questions
Our ESOP valuation was done in 2025. Is it still valid?
A perquisite valuation must be dated within 180 days of the exercise date, so a 2025 certificate will in any case have expired for exercises happening now. The eligibility question applies to the engagement you commission next, not retrospectively to one accepted before 2 January 2026.
Can a Chartered Accountant do this valuation instead?
No. Rule 3 specifies a SEBI-registered Category I Merchant Banker for perquisite valuation of unlisted shares. A CA's valuation is not sufficient for this purpose, and there is no fallback where a merchant banker is unavailable.
What should we ask our merchant banker?
Ask in writing whether their registration covers valuation-related activities, which category they have migrated to, which legal entity signs the certificate if valuation runs through a Separate Business Unit, and whether they intend to continue accepting valuation engagements after the transition window closes. Keep the answer on file.