An illustrative scenario, not a client file: a promoter of a Delhi private limited company wants to transfer 40,000 equity shares to a group company in November 2026. The CA handling the paperwork asks the obvious question: do we still need a Rule 11UA valuation report, and who signs it?
For any transfer on or after 1 April 2026, Rule 11UA valuation means Rule 57 of the Income-tax Rules, 2026. And for unquoted equity shares Rule 57 gives you one formula. No menu of methods, no DCF, no mandatory signatory.
What Rule 57 actually says about unquoted equity
The Income-tax Rules, 2026 were notified by CBDT Notification No. 22/2026 (G.S.R. 198(E)) dated 20 March 2026 and apply from 1 April 2026, alongside the Income-tax Act, 2025. Rules 11UA, 11UAA and 11UAB of the 1962 Rules still govern earlier years.
Item 4 of the Rule 57 table deals with unquoted equity shares and lists sections 26(2)(j), 72 and 92 of the 2025 Act. Section 72 is only the general capital-gains computation section. The provision that actually pulls a share transfer into Rule 57 is section 79 (the successor to section 50CA): if an unquoted share is transferred for less than its prescribed fair market value, that value is deemed to be the full value of consideration "for the purposes of section 72". Rule 56 fixes the valuation date under section 79 as the date of transfer. On the buyer's side, section 92(2)(m) (the successor to section 56(2)(x)) taxes the shortfall where it exceeds ₹50,000.
The formula is: FMV = (A + B + C + D − L) × (PV / PE), where:
- A = book value of all assets (other than jewellery, artistic work, shares, securities and immovable property), reduced by income-tax paid less refund claimed, and by any amount shown as an asset that is not really one (unamortised deferred expenditure, for example);
- B = open-market price of jewellery and artistic work, per a registered valuer's report;
- C = fair market value of shares and securities held, determined under Rule 57 itself;
- D = stamp duty value of immovable property;
- L = book value of liabilities, excluding paid-up equity capital, undeclared dividends, reserves and surplus (even if negative), excess tax provision, provisions for other than ascertained liabilities, and contingent liabilities;
- PV / PE = paid-up value of the shares being valued over total paid-up equity capital.
Now the part that changes how files are prepared. Nothing in item 4 requires a merchant banker, a Registered Valuer or anyone else to certify the number. A merchant banker (Rule 56 means a SEBI Category I merchant banker) or an accountant appears only in item 5 (unquoted shares and securities other than equity shares, such as CCPS), and even there the assessee "may" obtain a report. If your mental picture of a Rule 11UA valuation includes a merchant banker's DCF report, retire it for share transfers. That option sat in old Rule 11UA(2), never applied to the transfer provisions, and has no counterpart in Rule 57.
Someone still has to build the computation, defend every exclusion from L and keep the working paper ready for the Assessing Officer. That is usually the CA.
A worked example
XYZ Pvt Ltd has 10,00,000 equity shares of ₹10 each (paid-up equity ₹1.00 crore). Its balance sheet on the valuation date, in ₹ crore:
| Item | Book value | Rule 57 treatment | Amount used |
|---|---|---|---|
| Land | 2.00 | Stamp duty value (D) | 6.50 |
| Equity shares in unquoted subsidiary | 1.20 | Rule 57 FMV of subsidiary (C) | 0.80 |
| Other assets (PPE, receivables, cash) | 15.20 | Book value (A, before adjustments) | 15.20 |
| of which: advance tax/TDS 0.60, refund claimed 0.15 | Less tax paid net of refund | (0.45) | |
| of which: unamortised deferred expenditure | Not a real asset: deduct | (0.25) | |
| Total assets | 18.40 | ||
| Equity share capital | 1.00 | Excluded from L | — |
| Reserves and surplus | 9.10 | Excluded from L | — |
| Borrowings | 4.50 | In L | 4.50 |
| Trade payables | 2.60 | In L | 2.60 |
| Provision for tax (tax payable 0.55) | 0.70 | Excess 0.15 excluded | 0.55 |
| Gratuity (actuarial) | 0.30 | Treated as ascertained: in L | 0.30 |
| Warranty provision (estimate) | 0.20 | Treated as unascertained: excluded | — |
| Total equity and liabilities | 18.40 |
- A = 15.20 − 0.45 − 0.25 = ₹14.50 crore
- B = nil (no jewellery or art); C = ₹0.80 crore; D = ₹6.50 crore
- L = 4.50 + 2.60 + 0.55 + 0.30 = ₹7.95 crore
- A + B + C + D − L = 14.50 + 0 + 0.80 + 6.50 − 7.95 = ₹13.85 crore
- Per share: ₹13.85 crore × (₹10 / ₹1.00 crore) = ₹138.50
Book value per share is ₹101 (₹10.10 crore of capital and reserves over 10 lakh shares). The difference is almost entirely the land. Had the warranty provision been treated as ascertained and kept in L, the answer would be ₹136.50. On the 40,000-share transfer in the opening, that one judgment call moves the value by ₹80,000.
Where the rule is silent
A formula looks objective. But this one leaves real judgment calls, and I think practice has drifted into treating a Rule 57 number as settled when it is only as good as the inputs.
- The balance sheet date. Rule 56 settles which balance sheet: the one drawn up on the valuation date and audited by the company's auditor. For a share transfer, the valuation date is the date of transfer. But how many private companies have audited accounts as at, say, 14 November? The rule offers no fallback to the last March numbers, so I would prepare valuation-date accounts and get them audited instead.
- Ascertained or not? The warranty line in the example is the kind of item where two careful CAs can disagree. Document the basis.
- Ind AS books. "Book value as appearing in the books" already carries fair value for a company that fair-values financial assets under Ind AS 109. The rule does not distinguish.
- "Registered valuer" for jewellery and art. Rule 56 gives the term the meaning in section 513 of the 2025 Act, the income-tax valuer regime (Rules 246–247 and Form 169, recast by the Income-tax (Fourth Amendment) Rules, 2026, Notification No. 120/2026 of 17 September 2026). An IBBI registration under the Companies (Registered Valuers and Valuation) Rules, 2017 is a different thing, so don't assume one covers the other.
- Quoted or unquoted? Item 3 (stock exchange price) and item 4 (NAV) can give wildly different answers. Rule 56 treats a share as quoted only if it is quoted with regularity, on current transactions in the ordinary course. In ACIT v. Ajay Singh (ITAT Delhi, ITA No. 912/Del/2020, AY 2015-16, order dated 30 May 2025), the Tribunal held that a lock-in alone was not enough to treat listed shares as unquoted for Rule 11UA purposes and sent the matter back to the AO. Classification comes before computation.
The cross-border squeeze: FEMA Rule 21 meets Rule 57
Once a non-resident is on either side of the transfer, a second valuation enters. Rule 21 of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 requires pricing for an unlisted Indian company on an internationally accepted methodology, on an arm's length basis, certified by a Chartered Accountant, a SEBI-registered Merchant Banker or a practising Cost Accountant. Not a Registered Valuer. For a transfer from a resident to a non-resident, that fair value is a floor; for a non-resident selling to a resident, it is a cap. (Deal flow keeps this live: Grant Thornton Bharat's Q3 2026 Dealtracker counts 255 M&A transactions worth USD 13.2 billion.)
Case A, entry. The promoter of XYZ sells 50,000 shares to a US fund at ₹225. The FEMA DCF fair value is ₹210 and the Rule 57 FMV is ₹138.50, so both floors are cleared. Consideration is ₹1,12,50,000, about USD 119,174 at the RBI reference rate of ₹94.3996 (5 November 2026). What the US fund needs from the Indian side: the FEMA valuation certificate and the FC-TRS filing on the RBI's FIRMS portal, which the resident party reports.
Case B, exit. Two years later, after a weak patch, the fund sells 40,000 shares back to the promoter. The FEMA fair value is now ₹120, which caps the price. But XYZ still holds the same land, so the Rule 57 FMV is still ₹138.50. The promoter buys at ₹120 and is treated as receiving shares below fair market value: (138.50 − 120) × 40,000 = ₹7,40,000, taxable in his hands under section 92(2)(m) because it exceeds ₹50,000. The fund, as seller, is caught too: section 79 deems ₹138.50 a share (₹55,40,000) as its sale consideration for computing capital gains, treaty position aside. Actual consideration is ₹48,00,000, about USD 50,848 at the same rate.
This is one of those areas where each regulation is clear on its own and the two together produce a cost nobody negotiated. FEMA says "don't pay more than X". Income tax says "you received Y". So what should the CA actually do? Run both numbers before the term sheet is signed, and if the gap is material, put the tax cost into the price discussion or the exit mechanics rather than discovering it in scrutiny.
What I would do on the next file
For every unlisted share transfer from 1 April 2026: classify the instrument first (quoted or unquoted, equity or other); compute Rule 57 on a balance sheet you can justify, with a schedule showing every item excluded from L; obtain the FEMA Rule 21 valuation if a non-resident is involved; and put the agreed price, the Rule 57 FMV and the FEMA fair value side by side before anyone signs. A preferential allotment under section 62(1)(c) still needs a Registered Valuer's report under Rule 13 of the Companies (Share Capital and Debentures) Rules, 2014. Rule 57 does not.
The author is an IBBI Registered Valuer and Director at FinVal Research & Consultancy, a New Delhi-based advisory firm led by IBBI Registered Valuers. FinVal advises Indian companies and international investors on business valuation, ESOP advisory and transaction advisory. finvalresearch.in
The views expressed are for educational purposes only and do not constitute legal or tax advice. Readers should consult their advisors for specific situations.
CAclubindia
