Rule 53 of the Income-tax Rules, 2026

Where this rule sits

Rule 53 gives effect to Section 77 of the Income-tax Act, 2025. A rule cannot go beyond the section it serves: where the two seem to differ, the section governs.

← Rule 52  ·  Rule 54 →

What this rule does

The rule computes the fair market value of the capital assets transferred by way of slump sale for the purposes of section 77(3)(b). Sub-rule (1) sets the governing test: the fair market value is FMV1 determined under sub-rule (2) or FMV2 determined under sub-rule (3), whichever is higher.

Sub-rule (2) values the undertaking transferred. FMV1 = A + B + C + D – L. A is the book value of all assets other than jewellery, artistic work, shares, securities and immovable property, as appearing in the books of the undertaking or division transferred, reduced by any income-tax paid less income-tax refund claimed, and by any amount shown as an asset, including unamortised deferred expenditure, that does not represent the value of any asset. B is the open-market price of jewellery and artistic work on the basis of a valuation report from a registered valuer. C is the fair market value of shares and securities determined as provided in rule 57. D is the value adopted or assessed or assessable by any authority of the Government for stamp duty on the immovable property. L is the book value of liabilities of that undertaking or division, excluding six items: paid-up capital on equity shares; amounts set apart for dividends on preference and equity shares not declared before the date of transfer at a general body meeting; reserves and surplus by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation; provision for taxation other than income-tax paid less refund claimed, to the extent of the excess over the tax payable with reference to book profits; provisions made for meeting liabilities other than ascertained liabilities; and contingent liabilities other than arrears of dividends payable on cumulative preference shares.

Sub-rule (3) values the consideration. FMV2 = E + F + G + H. E is the monetary consideration received or accruing on the transfer. F is the fair market value of non-monetary consideration represented by property referred to in rule 57 [Table: Sl. Nos. 1 to 5], determined in the manner provided in that rule. G is the open-market price, on a registered valuer's report, of non-monetary consideration represented by property other than immovable property which is not covered by those Table entries. H is the stamp duty value adopted or assessed or assessable by any authority of the Government where the non-monetary consideration is immovable property.

Sub-rule (4) fixes the valuation date: both FMV1 and FMV2 are determined on the date of slump sale, and the valuation date referred to in rule 57 also means the date of slump sale for this purpose. Sub-rule (5) defines "artistic work" as archaeological collections, drawings, paintings, sculptures or any work of art, and gives "registered valuer" and "securities" the meanings assigned in rule 56.

Why it is there

Section 77(3)(b) brings the fair market value of the capital assets into the slump sale computation but does not say how that value is arrived at, and a slump sale transfers an undertaking as a whole rather than identifiable assets with observable prices. The rule builds two independent estimates — one from the net asset side, one from the consideration side — and takes the higher, so that a consideration pitched below the worth of the undertaking, or an undertaking with understated books sold for a full price, is caught either way. The exclusions from L stop shareholders' funds and soft provisions being dressed up as liabilities to depress the net figure.

Who it applies to

• A transferor computing capital gains on a transfer of an undertaking or division by way of slump sale
• A registered valuer within the meaning assigned in rule 56, reporting on jewellery, artistic work and other non-monetary property
• The Assessing Officer testing the fair market value adopted under section 77(3)(b)

The figures, and what each one turns on

What this means in practice

The higher-of test in sub-rule (1) means both computations have to be done; producing only the consideration side does not answer the rule. In FMV1 the classes of asset are mutually exclusive — jewellery, artistic work, shares, securities and immovable property are pulled out of A and valued separately as B, C and D — so double-counting one of them inside book value inflates the result. Two of the adjustments to A are easy to miss: income-tax paid is netted against refund claimed, and any asset that does not represent the value of an asset, expressly including unamortised deferred expenditure, comes out. On the liability side, L is not simply the liabilities in the balance sheet: reserves and surplus are excluded from L even where the figure is negative, so a negative reserve does not increase L and cannot be used to reduce FMV1. Sub-rule (4) ties everything to the date of slump sale, which displaces whatever valuation date rule 57 would otherwise use, and the definitions in sub-rule (5) borrow "registered valuer" and "securities" from rule 56 rather than defining them here.

An example

A company sells a division by slump sale for Rs 12 crore in cash. The division's books show other assets of Rs 9 crore, from which income-tax paid net of refund claimed of Rs 40 lakh and unamortised deferred expenditure of Rs 60 lakh are removed, giving A of Rs 8 crore; jewellery and artistic work valued by a registered valuer at Rs 50 lakh give B; shares and securities valued under rule 57 at Rs 1.5 crore give C; the stamp duty value of the division's land and building of Rs 3 crore gives D; and liabilities, after excluding equity paid-up capital, reserves and surplus and an unascertained provision, come to Rs 2 crore as L. FMV1 is Rs 11 crore and FMV2, being the whole consideration in money, is Rs 12 crore. Sub-rule (1) takes the higher figure, Rs 12 crore, as the fair market value for section 77(3)(b).

Where you meet this rule

You meet it in the capital gains computation for the year of a slump sale, in the valuation reports and stamp duty documents assembled to support it, and in the Assessing Officer's scrutiny of how the undertaking and the consideration were each valued.

The words themselves

What people get wrong

• Adopting the sale consideration as the fair market value. Sub-rule (1) requires the higher of FMV1 and FMV2, so the asset-side computation must be done as well.
• Leaving jewellery, artistic work, shares, securities or immovable property inside A. Sub-rule (2) excludes all five from A and values them separately as B, C and D.
• Taking the whole book value of liabilities as L. Sub-rule (2) excludes six items from L, including equity paid-up capital, undeclared dividend set-asides and unascertained provisions.
• Treating negative reserves as increasing L. The exclusion for reserves and surplus applies even if the resulting figure is negative.
• Valuing immovable property at book or agreement value. Both D and H take the value adopted or assessed or assessable by any authority of the Government for stamp duty.
• Using rule 57's own valuation date. Sub-rule (4) makes the date of slump sale the valuation date for the purposes of this rule.

Read with

• Rule 56
• Rule 57