Share Valuation for Income Tax: Rule 57 (formerly Rule 11UA)
By CA V. Viswanathan, FCA, ACS, CFE, IBBI Registered Valuer (IBBI/RV/03/2019/12333). V Viswanathan & Associates, Chartered Accountants, FRN 013713S. Law stated as at 13 November 2026.
A share valuation for income tax works out the fair market value of unquoted shares under Rule 57 of the Income-tax Rules, 2026, which replaced Rule 11UA from 1 April 2026. It is needed whenever unquoted shares are transferred or received: if the price is below that value, the seller is taxed on the deemed consideration under section 79 of the Income-tax Act, 2025 and the buyer on the difference under section 92(2)(m). Equity shares follow a net asset formula; other securities are valued at open-market price on a merchant banker's or accountant's report. V Viswanathan & Associates prepares these valuations and serves clients across India from Chennai.
What is a share valuation for income tax?
Income-tax law does not accept the price two parties agree for unquoted shares if it is below fair market value. It substitutes a value worked out under a prescribed rule and taxes the gap. From 1 April 2026 that rule is Rule 57 of the Income-tax Rules, 2026, which takes the place of Rules 11UA and 11UAA of the Income-tax Rules, 1962. A share valuation for income tax applies Rule 57 to the company's balance sheet and states the fair market value per share on the valuation date.
When is the valuation required?
| Who is taxed | Provision | What happens |
|---|---|---|
| Buyer or recipient of unquoted shares | Section 92(2)(m), Income-tax Act, 2025; section 56(2)(x) of the 1961 Act for earlier years | If the price is below fair market value by more than ₹50,000, the difference is income from other sources |
| Seller of unquoted shares | Section 79, Income-tax Act, 2025; section 50CA of the 1961 Act for earlier years | If the price is below fair market value, that value is deemed to be the full value of consideration for capital gains |
| Seller of an undertaking that holds shares | Section 77 and Rule 53 | Shares held by the undertaking enter the slump sale formula at their Rule 57 value |
One under-priced transfer can therefore be taxed twice: once in the seller's hands and once in the buyer's. Section 79 allows the Government to prescribe classes of persons and conditions to which the seller-side rule does not apply. Gifts between relatives and the other exceptions in section 92 are outside the buyer-side rule.
How does Rule 57 value unquoted shares?
| Property | Method under Rule 57 | Report |
|---|---|---|
| Unquoted equity shares (Sl. No. 4) | Adjusted net asset formula: (A + B + C + D − L) × PV ÷ PE | The rule prescribes a formula, not a signatory |
| Unquoted preference shares, debentures and other securities (Sl. No. 5) | The price the security would fetch in the open market on the valuation date | The assessee may obtain a report from a merchant banker or an accountant |
| Quoted shares bought off-market (Sl. No. 3) | Lowest price quoted on a recognised stock exchange on the valuation date | None |
In the equity formula, A is the book value of assets other than jewellery, artistic work, shares, securities and immovable property, after removing income-tax paid and any item that does not represent an asset. B is the open-market price of jewellery and artistic work on a registered valuer's report. C is the fair market value of shares and securities held, worked out under the same rule. D is the stamp duty value of immovable property. L is the book value of liabilities, leaving out paid-up equity capital, reserves, provisions for unascertained liabilities and contingent liabilities. PV is the paid-up value of the share and PE the total paid-up equity capital.
Two consequences follow. Land and buildings enter at stamp duty value and investments at their own fair market value, so a company with old property or a valuable subsidiary can have a tax value far above book value. And the formula ignores future earnings, so it can be far below the discounted cash flow value used for company law or FEMA.
Who can sign a share valuation for income tax?
| Purpose | Registered Valuer | Merchant Banker | Chartered Accountant |
|---|---|---|---|
| Unquoted equity shares on a transfer (Rule 57, Sl. No. 4) | Not named; needed only for jewellery and artistic work held by the company | Not named | Not named. The formula is normally computed and certified by a chartered accountant |
| Unquoted preference shares and other securities (Sl. No. 5) | Not named | Yes | Yes. The rule refers to an accountant |
| Unlisted shares for an employee's perquisite (Rule 15, Income-tax Rules, 2026) | Not accepted | Yes. SEBI-registered Category I | Not accepted |
CA V. Viswanathan is a chartered accountant and an IBBI Registered Valuer for securities or financial assets (IBBI/RV/03/2019/12333). His registration can be checked on the IBBI register of registered valuers. Where the same transfer also needs a FEMA certificate or a Companies Act report, we prepare them on the same date so that the differences between the three values are explained in one place.
Worked example: transfer of shares below fair market value
Illustrative figures, not a real client. A private company has paid-up equity capital of ₹1,00,00,000 in shares of ₹10 each. A shareholder sells 1,00,000 shares to an unrelated buyer at ₹50 a share. On the valuation date the balance sheet, adjusted as Rule 57 requires, shows:
| Item | Basis | Amount |
|---|---|---|
| A: other assets | Book value, after removing tax paid and deferred expenditure | ₹8,00,00,000 |
| B: jewellery and artistic work | None held | ₹0 |
| C: shares and securities held | Fair market value under Rule 57 (book value ₹80,00,000) | ₹1,20,00,000 |
| D: immovable property | Stamp duty value (book value ₹1,50,00,000) | ₹3,50,00,000 |
| L: liabilities | Book value, excluding capital, reserves and contingent items | ₹5,20,00,000 |
| A + B + C + D − L | ₹7,50,00,000 |
- Fair market value per share: ₹7,50,00,000 × ₹10 ÷ ₹1,00,00,000 = ₹75.
- Seller: consideration received is ₹50,00,000; the deemed consideration under section 79 is 1,00,000 × ₹75 = ₹75,00,000. Capital gains are computed on ₹75,00,000.
- Buyer: fair market value exceeds the price by ₹25,00,000, which is more than ₹50,000, so ₹25,00,000 is income from other sources under section 92(2)(m).
What about angel tax and the old Rule 11UA methods?
Section 56(2)(viib) of the 1961 Act, which taxed a company on share premium above fair market value, does not apply from assessment year 2025-26 (Finance (No. 2) Act, 2024). The discounted cash flow and other methods that Rule 11UA(2) offered for that purpose matter only for assessments and appeals for share issues up to 31 March 2024. Rule 11UA itself continues to govern transfers made up to 31 March 2026.
What documents are needed?
- Balance sheet drawn up to the valuation date, with schedules
- Details of immovable property and the stamp duty (guideline) value on that date
- List of investments, with the latest balance sheets of unquoted investee companies
- Income-tax paid, refunds claimed and provisions
- Share purchase agreement or gift deed, and the shareholding before and after
What is the process and how long does it take?
- Scoping call: who is taxed, under which provision, and on which date.
- Engagement letter with a fixed fee and document list.
- Computation under Rule 57, with a working for each adjustment.
- Signed report with UDIN, and a note on any gap from the agreed price.
Reports are usually issued within 5–7 working days of complete information, and within 15 working days for complex cases. The clock starts when the last document is received, not on the date of engagement.
What does a share valuation for income tax cost?
Our fee for a share valuation for income tax starts from ₹35,000 + 18% GST. The figure depends on the number of instruments or companies to be valued, whether projections exist, and how many laws the same transaction has to satisfy. We quote a fixed fee after a first call and before any work starts. Statutory filing fees, stamp duty and any merchant banker's fee are separate.
Related valuations
Price rules for a non-resident buyer or seller are in FEMA valuation certificate for FC-GPR and FC-TRS. The sale of a whole business is covered in slump sale valuation in India.
Every valuation report we issue, with the law behind it and the person who must sign it, is listed on our valuation services page.
About V Viswanathan & Associates
- Chartered Accountants, FRN 013713S— Practising since 2012 from G-131, Spencer Plaza, Anna Salai, Chennai.
- IBBI Registered Valuer— Securities or financial assets, CA V. Viswanathan (IBBI/RV/03/2019/12333), registered 30 September 2019.
- FCA, ACS, CFE— Member of ICAI since 2012 and Fellow since 2017; company law, tax and forensic accounting in one practice.
- Across India— Serves clients across India from Chennai through video consultations and digitally signed reports.
Frequently Asked Questions
What replaced Rule 11UA?
Rule 57 of the Income-tax Rules, 2026, with effect from 1 April 2026. It brings the valuation of jewellery, artistic work, quoted and unquoted shares and other property into one table. Rule 11UA of the 1962 Rules continues to apply to transactions up to 31 March 2026.
How is the fair market value of unquoted equity shares calculated for income tax?
By the formula (A + B + C + D − L) × PV ÷ PE in Rule 57: book value of assets, with jewellery and investments at market value and immovable property at stamp duty value, less liabilities, divided over the paid-up equity capital.
What is section 79 of the Income-tax Act, 2025?
It is the successor of section 50CA. Where unquoted shares are transferred for less than their fair market value determined in the prescribed manner, that value is deemed to be the full value of consideration for computing the seller's capital gains.
When is the buyer of shares taxed?
When shares are received for a price that is below their aggregate fair market value by more than ₹50,000. The difference is income from other sources under section 92(2)(m) of the Income-tax Act, 2025 (section 56(2)(x) of the 1961 Act).
Is a merchant banker's report required for Rule 57?
Not for unquoted equity shares, which follow a formula. For unquoted preference shares, debentures and other securities the rule says the assessee may obtain a report from a merchant banker or an accountant.
Can the DCF method be used for a share transfer under income tax?
Not for unquoted equity shares on a transfer: Rule 57 prescribes the adjusted net asset formula. Discounted cash flow remains relevant for other securities valued at open-market price and for company law and FEMA.
Why is the income-tax value different from the FEMA value?
The tax formula is based on the balance sheet, with property at stamp duty value. FEMA asks for fair value by an internationally accepted pricing methodology, usually discounted cash flow. The two answer different questions and often differ.
How long does a Rule 57 valuation take?
Usually 5–7 working days from complete information, and up to 15 working days where the company holds several unquoted investments or properties.
Related Guides
FEMA Valuation Certificate for FC-GPR and FC-TRS
The certificate a bank needs before a foreign investment is reported.
Law stated as at 13 November 2026. Official sources: Rule 57, Income-tax Rules, 2026 (Income Tax Department), section 79, section 92, Income-tax Act, 2025 (Income Tax Department). This page is general information, not advice on a specific transaction.
Share Valuation for Income Tax
Send us the balance sheet and the proposed price and we will tell you the tax value before you sign.