Rule 10 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rule 10 of the Income-tax Rules, 2026 defines the ten terms that rules 11 and 12 run on — the qualified accountant, the observable price, the book value of liabilities and the right of management or control among them.
The accountant test
Clause (a)(i): an accountant means an accountant referred to in section 515(3)(b) who fulfils the following conditions:
| If he is… | Conditions |
|---|---|
| Pursuing the profession of accountancy individually, or is a valuer | (I) professional experience of not less than ten years; and (II) annual receipt in the year preceding the year in which the valuation is undertaken, from the exercise of the profession, exceeding fifty lakh rupees |
| A member or partner in an entity rendering accountancy or valuation services | The annual receipt of the entity in the preceding year exceeds three crore rupees |
Clause (a)(ii) extends the definition to a foreign valuer: any valuer recognised for undertaking similar valuation by the government of the country where the foreign company or entity is registered or incorporated, or any of its agencies, who satisfies the same conditions and, where he is in an entity, whose entity or its affiliates have presence in more than two countries.
Both receipt thresholds in rule 10 look at the year preceding the year in which the valuation is undertaken. A firm that has just crossed Rs 3 crore in the current year does not qualify yet; one whose receipts have fallen below it has ceased to qualify. Confirming the valuer's eligibility is therefore a dated enquiry, and it should be documented at the time of engagement rather than assumed from reputation or size.
The balance sheet
| Case | What "balance sheet" means |
|---|---|
| Indian company | The balance sheet including the notes annexed and forming part of the accounts, drawn up on the specified date, audited under the laws relating to companies in force |
| Any other case | The balance sheet of the company or entity, including the notes, drawn up on the specified date and submitted to the relevant authority outside India under the laws of the country of registration or incorporation |
| Finalisation pending on the specified date | An interim balance sheet drawn up as on the specified date and approved by the board of directors or an equivalent body |
| Where the specified date is the one in section 9(10)(d)(ii) | The balance sheet drawn up on that date and certified by an accountant |
Rule 11(7) then closes the loop: where fair market value has been determined on an interim balance sheet, it shall be appropriately modified after finalisation of the financial statements, and rules 11, 12 and 235 apply accordingly.
The observable price
Clause (f): in respect of a share quoted on a stock exchange, the observable price is the higher of:
- the average of the weekly high and low of the closing prices of the shares quoted on that exchange during the six months preceding the specified date; or
- the same average during the two weeks preceding the specified date.
The definition in rule 10 deliberately takes the higher of a six-month average and a two-week average. A share that has risen sharply just before the specified date is valued on the recent window; one that has fallen is valued on the longer window. Computing only one of the two — usually the six-month figure — understates the observable price whenever the shorter window is higher.
The remaining definitions
| Term | Meaning under rule 10 |
|---|---|
| Book value of the liabilities | The value of liabilities shown in the balance sheet, excluding the paid-up capital in respect of equity shares or members' interest, and the general reserves and surplus and security premium related to that paid-up capital |
| Connected person | As assigned in section 184(5) |
| Foreign company or entity | A company or entity registered or incorporated outside India |
| Right of management or control | Includes the right to appoint the majority of the directors or to control the management or policy decision, exercisable individually or together, directly or indirectly, including by virtue of shareholding, management rights, shareholders agreements, voting agreements or in any other manner |
| Specified date | As assigned in section 9(10)(d) |
| Telegraphic transfer buying rate | As assigned in rule 207 |
| Merchant banker and recognised stock exchange | As assigned in rule 56 |
Two of these do more work than their length suggests. The book value of liabilities definition is what makes the "A + B" formulas in rule 11 produce an enterprise value rather than an equity value — it strips out equity capital and the reserves attached to it. And the right of management or control definition is deliberately behavioural: it catches control exercised together with others and indirectly, so a minority holding coupled with a shareholders agreement can trigger the special valuation in rule 11(2)(a).
Worked example
| Question | Answer under rule 10 |
|---|---|
| Sole practitioner valuer, 12 years' experience, prior-year receipts Rs 42 lakh | Not qualified — receipts below Rs 50 lakh |
| Partner in a firm with prior-year receipts of Rs 4 crore, 6 years' experience | Qualified — the entity test applies to a member or partner |
| Overseas valuer in a two-country network | Not qualified — presence in more than two countries required |
| Six-month average Rs 310; two-week average Rs 348 | Observable price Rs 348 |
| Liabilities include Rs 50 crore share capital and Rs 30 crore securities premium | Excluded from book value of liabilities |
| 25% shareholder with a right to appoint the majority of directors | Has a right of management or control |
| Accounts not finalised on the specified date | Board-approved interim balance sheet, with later modification under rule 11(7) |
Compliance checklist
- Confirm the valuer meets the rule 10 accountant conditions in the preceding year, and record the evidence.
- For a foreign valuer, check government recognition and presence in more than two countries.
- Use the correct balance sheet — audited, foreign-filed, interim, or accountant-certified as the case requires.
- Compute both observable price averages and take the higher.
- Strip equity capital, related reserves and securities premium out of the book value of liabilities.
- Test management or control on agreements and arrangements, not shareholding alone.
- Use the rule 207 telegraphic transfer buying rate for currency conversion.
- Plan for the rule 11(7) revision where an interim balance sheet was used.
Common mistakes
- Engaging a valuer without testing the preceding-year receipts.
- Taking only the six-month observable price average.
- Leaving share capital and premium inside the book value of liabilities.
- Reading control as majority shareholding only.
- Treating an interim-balance-sheet valuation as final.