Rule 11 of the Income-tax Rules, 2026

Where this rule sits

Rule 11 gives effect to Section 9 of the Income-tax Act, 2025. A rule cannot go beyond the section it serves: where the two seem to differ, the section governs.

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What this rule does

The rule sets out how the fair market value of an asset held directly or indirectly by a foreign company or entity is to be computed as on the specified date, for the purposes of section 9(10). Sub-rule (1) states that scope: tangible or intangible assets, valued with reference to the specified date.

Sub-rule (2) deals with a share of an Indian company listed on a recognised stock exchange on the specified date. The fair market value is the observable price on the exchange, with two qualifications. Clause (a) applies where the share is part of a shareholding that confers, directly or indirectly, any right of management or control in the company; there the value is (A+B)/C, where A is market capitalisation on the basis of the observable price, B is the book value of the liabilities of the company, and C is the total number of outstanding shares. Clause (b) applies where the share is listed on more than one recognised stock exchange; the observable price is taken from the exchange recording the highest volume of trading in the share during the tax year.

Sub-rule (3) deals with a share of an Indian company not listed on a recognised stock exchange on the specified date. Value is what a merchant banker or an accountant determines as per any internationally accepted valuation methodology for valuation of shares on arm's length basis, increased by the liability, if any, considered in that determination.

Sub-rule (4) deals with an interest in a partnership firm or an association of persons, in a sequence: (a) the value of the firm or association is determined by a merchant banker or an accountant on an internationally accepted methodology, increased by any liability considered; (b) so much of that value as equals the amount of its capital is allocated among partners or members in the proportion in which capital was contributed; (c) the residue is allocated as per the partnership or association agreement for distribution of assets on dissolution; (d) failing such an agreement, the residue is allocated in the proportion in which they are entitled to share profits; and (e) the sum of what is allocated to a partner or member is the fair market value of that person's interest.

Sub-rule (5) is the residual case: for any asset other than those in sub-rules (2), (3) and (4), the value is the price it would fetch if sold in the open market as determined by a merchant banker or an accountant, increased by any liability considered in that determination.

Sub-rule (6) values all the assets of the foreign company or entity, by a Table of four cases, each producing A+B. Entry 1 applies where the transfer of the share or interest is between persons who are not connected persons: A is market capitalisation computed on the basis of the full value of consideration for the transfer, B is the book value of the liabilities as on the specified date as certified by a merchant banker or an accountant. Entry 2 applies where the share of the foreign company or entity is listed on a stock exchange on the specified date: A is market capitalisation on the observable price on that exchange, B is the book value of the liabilities as on the specified date. Entry 3 applies where the share is listed on more than one stock exchange: A uses the observable price on the exchange recording the highest volume of trading during the period considered for determining the price. Entry 4 applies where the share is not listed: A is the fair market value of the foreign company or entity as determined by a merchant banker or an accountant on an internationally accepted valuation methodology, and B is the value of liabilities considered in arriving at A.

Sub-rule (7) requires a value determined on an interim balance sheet referred to in rule 10(b)(ii) to be appropriately modified after the relevant financial statement is finalised under the applicable laws, and applies this rule and rules 12 and 235 accordingly. Sub-rule (8) requires that, in valuing an asset located in India that is a share of an Indian company or an interest in a firm or association, all the assets and business operations of that company, firm or association be taken into account, whether located in India or outside. Sub-rule (9) fixes the rate of exchange for calculating in foreign currency the rupee value of assets located in India as the telegraphic transfer buying rate of that currency as on the specified date.

Why it is there

Section 9(10) makes the value of assets held by a foreign company or entity decide whether and how much of an indirect transfer is taxed in India, but the section does not say how any of those values are to be arrived at. This rule supplies the method, case by case, and the identity of the valuer where a market price does not exist. It also settles two things that would otherwise be argued each time: which exchange to use when a share is quoted on several, and what to do when the only accounts available are interim.

Who it applies to

• A foreign company or entity whose share or interest is transferred, where value of assets is in issue under section 9(10)
• The transferor of a share of, or interest in, such a foreign company or entity
• A merchant banker or an accountant asked to determine value under sub-rules (3), (4), (5) or the sub-rule (6) Table
• The Assessing Officer testing a value returned under section 9(10)

The figures, and what each one turns on

What this means in practice

The listed price is not always the answer even for a listed share. If the share forms part of a holding that confers any right of management or control, directly or indirectly, sub-rule (2)(a) replaces the quoted price with (A+B)/C, which loads the book value of liabilities onto market capitalisation and divides by outstanding shares. Every route in this rule that involves a valuer adds back the liability considered in the determination, so a value net of debt is the wrong figure to return. Sub-rule (8) forbids carving out the foreign operations of an Indian company, firm or association when valuing an asset located in India: the whole of its assets and business operations count, wherever they are. And a value built on an interim balance sheet under rule 10(b)(ii) is provisional only; sub-rule (7) requires it to be modified once the financial statement is finalised.

An example

A foreign company holds shares in an Indian listed company, and that holding carries a right to appoint directors. On the specified date the market capitalisation of the Indian company on the observable price is Rs 800 crore, the book value of its liabilities is Rs 200 crore, and it has 10 crore shares outstanding. Because the shareholding confers a right of management or control, sub-rule (2)(a) applies and the fair market value per share is (800 + 200) / 10, that is Rs 100, not the quoted price. Had the same shares carried no such right, the observable price on the exchange would have stood as the value under sub-rule (2).

Where you meet this rule

You meet it in a valuation report from a merchant banker or an accountant filed or called for in an indirect-transfer matter under section 9(10), and in the Assessing Officer's questions on how a reported value was arrived at. A taxpayer with no offshore holding structure does not meet the rule directly.

The words themselves

What people get wrong

• Using the quoted price for a controlling holding. Sub-rule (2)(a) requires the (A+B)/C formula wherever the shareholding confers, directly or indirectly, any right of management or control.
• Reporting a valuer's figure net of liabilities. Sub-rules (3)(b), (4)(a) and (5) each require the value to be increased by the liability, if any, considered in the determination.
• Picking the exchange with the highest price when a share is quoted on several. Sub-rule (2)(b) points to the exchange with the highest volume of trading in the share during the tax year, and the sub-rule (6) Table Sl. No. 3 does the same by volume for the foreign company's own share.
• Allocating the whole value of a firm by profit-sharing ratio. Sub-rule (4)(b) allocates only so much of the value as equals the capital, and by capital contribution; the residue goes by the dissolution agreement under clause (c), and only in its absence by profit-sharing proportions under clause (d).
• Treating a value built on an interim balance sheet as final. Sub-rule (7) requires it to be appropriately modified after the relevant financial statement is finalised, with rules 12 and 235 applying accordingly.
• Excluding foreign assets of the Indian company or firm being valued. Sub-rule (8) requires all assets and business operations to be taken into account, whether in India or outside.

Read with

• Rule 10
• Rule 12
• Rule 235